First-Time Homebuyers Find Houses in Foreclosure Listings

by Peter Vernon on Foreclosure Help

Bargain-priced homes in foreclosure listings are attracting first-time homebuyers nationwide.

According to the National Association of Realtors, up to 45 percent of bank home sales in recent weeks involve home purchases made by first-time homebuyers taking advantage of bargain prices in foreclosure listings. In March, over half of total home sales were made to first-time homebuyers, with most of the purchases involving bargain-priced homes in foreclosure listings.

However beneficial the bargain prices are to first-time homebuyers, low prices have been dragging down nationwide home prices to distressed levels. Homes in foreclosure listings typically are priced 20 percent less than new homes.

In March, the national home median price for existing homes decreased by 12.4 percent to $175,200, compared to the median price in March 2008 based on NAR’s report.

But on the other hand, economists say first-time homebuyers could be the group that would pull up the drowning market from the depths by their sheer number. Large numbers of first-time homebuyers could remove much of the unsold inventory in foreclosure listings that are pushing down home prices nationwide.

As homes in foreclosure listings are being snapped up by first-time homebuyers, the total number of previously-bank owned homes for sale on March 31 dropped by 1.6 percent to 3.74 million units.

Housing analysts expect more first-time homebuyers to buy existing homes and houses in foreclosure listings because of record low prices, record low mortgage rates, large numbers of choices in foreclosure listings and the tax credit available for first-time homebuyers.

Distressed homes are attracting more interest because oftentimes they sell well below market value and they are priced lower by over 20 percent than new homes.

NAR’s chief economist Lawrence Yun said the fact that more first-time homebuyers are attending open houses is one positive sign pointing towards market improvement. He said it is encouraging that first-time homebuyers are taking advantage of record low mortgage rates and the tax credit.

Based on NAR’s report, first-time homebuyers are choosing loans insured by the Federal Housing Administration because FHA requires only about 3.5 percent for the down payment. Last year, the nationwide median down payment for first-time homebuyers was 4 percent, an increase from the 2-percent down payment in 2007.

The volume of FHA-insured loans covering single-family homes has increased last year to over $180 billion, up from the $59 billion volume in 2007. FHA expects billions more in 2009 as first-time homebuyers find in foreclosure listings properties that they can turn into their dream homes.