Have foreclosures gotten a bad rep?
For years, economists and policy makers have believed that foreclosures are inherently toxic for neighboring home values. Many therefore assume that a housing recovery will be impossible as long as foreclosures remain abundant. The mere existence of 4 to 6 million properties in the foreclosure pipeline has contributed to a growing consensus among economists that national median prices won’t turn the corner until 2013 at best.A new analysis of recovery patterns in some of the nation’s markets hit hardest by foreclosures suggests that under the right conditions full value properties large numbers of foreclosures—even greater than a 20 percent saturation of the market—can thrive side by side. The study by data provider Clear Capital was released earlier this week and it may radically change the way we think about foreclosures.For investors, the study provides both a confirmation of the critical role they play in the recovery of devastated markets and guidelines to help identify opportunities that offer maximum profit potential.Florida PhenomenonClear Capital conducted a microanalysis of a number of Florida markets that have been flooded by foreclosures. Many of these markets suffered several waves of foreclosures resulting from the subprime meltdown, the South Florida condo crash, the 2007 recession that kept snowbirds north and the subsequent housing crisis that froze many boomers in place, making it hard to sell their existing homes and buy retirement properties. In markets like Miami, Naples and Fort Myers, prices plummeted 35 percent or more below peak as the foreclosures. About a year ago, inventories shrank dramatically as sellers withdrew from the market in response to prices that were and the flow of foreclosures slowed as processing in Florida, a judicial state, slowed. Low prices sparked demand among investors and foreign buyers, and prices turned around. Among the 50 national markets Clear Capital tracks, sale prices rose 6.7 percent in Orlando last year and In Miami they rose 5.6 percent. Realtor.com’s data shows year to year list prices in Naples and Fort Myers were up by 21 percent, and West Palm Beach by 18 percent. Eight Florida markets had double digit increases in list prices in 2011.“This positive trend isn’t receiving the attention it’s due because of the interaction of people’s expectations, perceptions and reality,” said John Tucillo, chief economist of the Florida Realtor Association in November. “When you come out of a recession, people expect the real estate market to take a huge jump forward, and when it doesn’t, they perceive that the market is ‘bad’ or still down. However, the reality is that the Florida market is improving and it has been for some time – it’s just improving more slowly than initial expectations.”What’s even more remarkable about the Florida phenomenon is that prices for both full value and distressed properties are rising simultaneously. Moreover, prices are rising even though foreclosures still account for a lion’s share of listings. REO market share in Orlando fell 21.0 percent last year and 9.9 percent In Miami, but some 24.