What happened to all of those foreclosures?

I get a surprising number of inquiries from people who want to buy bank owned property. During the height of the housing market crash foreclosures were plentiful. They seemed to languish on the market. The people who bought during the crash did get some bargains.

Those days are gone at least for now. The foreclosure rate is still falling and Minnesota has one of the lowest foreclosure rates at .4%.

Foreclosures and pre-foreclosures in the twin cities

It was the worst of times for homeowners

Twin cities foreclosures
Foreclosures sold

The graph shows foreclosed homes that were sold. It doesn’t represent all of the foreclosures in the Twin cites, just the tens of thousands that were listed on the MLS by local Realtors. Currently foreclosures are at about the same level they were at before the big crash. The percentage of home owners who have equity in their homes continues to increase. During the crash homes were losing value quickly and owners who wanted to sell could not afford to.

Could this happen again?

Your house is a bank?

House - bank

Mortgage interest rates have gone up a little from what has been an all time low. Some are even up over 4%. GASP! I can not help but remember all the years when they were over 8% and even over 15%.

However when rates go up fewer people refinance and that means that fewer loan officers have loans to work on which means their income goes down. Get ready for the post cards and mailers about how much you can borrow.

Last night I even saw an advertisement about how your home is your bank. Using home equity as a source of cash isn’t a bad thing. Especially when the money is used for a new roof or for that boiler you have always wanted. The interest rates are usually more favorable than they are on other types of loans and for some there is a mortgage interest tax deduction.

However there is some danger in treating a home like a bank, because it isn’t just a bank it is where you live and probably your most valuable asset. It wasn’t all that long ago that home values went down and millions of home owners ended up owing more on their homes than the homes could be sold for. Getting into a negative equity situation can lead to foreclosure.

There are numerous advantages in not borrowing money that should also be explored before withdrawing money from the bank of home equity.

Maybe I just have the post housing crash jitters. . . but please borrow responsibly. It doesn’t seem like the banks suffered because they lent money to people who could not pay it back but many former home owners did and still are.


The inexpensive house that is very expensive

fixr upper
house being rehabbed in St. Paul

There are homes on the market that are listed for less than 50K. s. Considering the median home sale price in St. Paul is around 182,000 this year and the average is over 200K. To home buyers 50K -100K really seems like a bargain. The bargin priced houses being sold at auctions are not always a bargin.

Unfortunately there really isn’s such a thing as a 50K home that doesn’t need a lot of work. I am sure there are some exceptions but not many. It is possible to spend more money than a home is worth getting it up to code and livable. The city has rules and will not allow houses to be lived in until they meet certain standards.

It can be difficult to borrow money for the repairs and at least here in St. Paul the city will require permits and licensed contractors for many common repairs.

Inexpensive houses that need a lot of work are an opportunity for people who have experience rehabbing houses and have the necessary funds to do so.

The professional house flippers do not purchase a property until they have a pretty good idea how much it will cost to fix it up and how much it will be worth when it is finished. Even the pros end up over budget and they sometimes over estimate the value of the home once the work is done. Like all types of investments investing in real estate is not without risk.

First time home buyers can find some bargains if they look for homes that need cosmetic work like painting and carpet removal and maybe some hardwood floor sanding. These homes are going to cost more than 50K. They may need to remove wall paper and dropped ceilings and lighting from the 1970’s. Often the home owner can do most of the work themselves with or without help from family, friends or YouTube how to videos.

It is possible to improve the value of most any home by making smaller repairs and upgrades like new exterior doors or a back splash in the kitchen or some new lighting.


Distressed property

Porch Porch

I am not sure why we call property distressed. It is usually the owner who is distressed and unable to make mortgage payments. Right now over 11% of the homes on the market are foreclosures or are being list as potential short sales. These properties on average have been on the market twice as long as properties that are not distressed.

The greatest number of distressed properties for sale are on the greater east side. In some neighborhoods there are no distressed properties for sale. During the peak of the great recession and crash of the housing market, at times 40% of the properties on the market were in a foreclosure or pre-foreclosure status.

For more information about how to prevent foreclosure please go to the Minnesota Homeownership Center website.