Bargain-Priced Detroit Foreclosures Could Make a Comeback

by Peter Vernon on Foreclosures

Bargain-priced Detroit foreclosures could enter the market again if the increased pace of foreclosures continue.

Hopes of market recovery were dashed when recent reports showed that more homes entered foreclosed homes auctions in metro Detroit in April. Sellers and realtors were encouraged when the median house price in April in southeastern Michigan increased by 46.7 percent to $37,000, but they quickly snapped back to reality when they saw that the foreclosure numbers were surging again.

Based on data from a real estate research company, the number of Greater Detroit homes repossessed by banks in April shot up by a staggering 98 percent from 2,072 units in April last year to 4,111 units in April this year. In addition, the number of homes hit with default notices increased by 8 percent, increasing the probability of more foreclosures.

Local market analysts said that the sharp surge in April foreclosures was largely due to two factors: high unemployment rate and the backlog caused by the Michigan foreclosure prevention law which was implemented last summer.

Even if homeowners get help from HUD loan modification counselors, their documents could not be filed formally with the banks because they do not have the income to prove they can pay the modified monthly payments.

The jobless rate in Detroit shot up to 15.5 percent in March, the highest rate posted by a large metro area. High numbers of jobless homeowners mean high numbers of homes going into default and eventually into foreclosure.

Meanwhile, the Michigan foreclosure prevention law ironically caused in part the surge in Detroit foreclosures in April as the law merely delayed foreclosure proceedings for jobless homeowners. The law requires mortgage lenders to delay by 90 days their filing for sheriff’s sale so homeowners can have more time to work out modification.

But because many homeowners have no jobs, the 90-day delay only gave more time for homeowners to stay in their homes while waiting for eviction. The delays therefore caused a backlog that in turn caused a sharp surge in foreclosures in April.

Aside from the more than 4,000 homes repossessed in April in metro Detroit, there were also almost 44,000 homes sitting on the books of banks in April, giving a total of more than 48,000 bank owned homes. With this huge number, finding cheap homes for sale in the Detroit area is not a difficult task.

In April last year, there were 30,218 bank owned houses and condos in bank listings. The 45-percent over-the-year increase in April this year indicates that many residents are still struggling.

Among the ten most foreclosure-battered states, Michigan is one of the five that are still posting foreclosure increases. California, Florida and Arizona have posted both over-the-year and over-the month declines. In contrast, foreclosures in Michigan increased by more than 8 percent from March to a total of 19,173 filings in April.

Of the 6,252 Michigan homes bought back by lenders in April, nearly 66 percent were metro Detroit foreclosures. With these numbers adding to the already huge numbers of existing REO units, it is highly likely that bargain home prices would come back.