Just ask Phil Faranda, a Realtor who specializes in distressed properties. He says foreclosed-on homes, which may have been frowned upon by homebuyers in the past, have become hot-ticket items in recent years.
"When you think of a foreclosure, lots of the time you think of a kind of boarded-up, dumpy place," says Faranda, who owns Briarcliff Manor, N.Y.-based brokerage J. Philip Real Estate. But the housing downturn, he insists, "has made foreclosures sexy."
A recent survey seems to suggest the same, albeit less colorfully: Realtor.com found that buyers are now three times as likely to buy a foreclosure as they were just 2½ years ago. In the May survey, 64.9 percent of respondents said that they were likely to buy a foreclosure, leaps and bounds ahead of the 25.3 percent who said the same in the online listing service's October 2009 survey.
That sheds light on what industry insiders say is a broad shift in the public's perception of foreclosures, as more buyers and investors have familiarized themselves with a market dominated by foreclosures.
"Foreclosures have become such a dominant part of the market," says Daren Blomquist, vice-president of online foreclosure marketplace RealtyTrac. "Buyers realize that they have to at least consider a foreclosure purchase if they're in the market."
Foreclosure-related sales, which include short sales and sales of bank-owned homes, have accounted for 26 percent of total home sales in the first quarter of 2012, up from about 1 percent in the same time period in 2005 and down from a peak of 45 percent in 2009, according to RealtyTrac.
Currently there are about 1.4 million homes in the national foreclosure inventory, according to analytics firm CoreLogic. Though that level is marginally lower than a year before, when foreclosures numbered 1.5 million, it still represents an enormous increase compared to foreclosure levels before the housing meltdown. In January 2005, there were only 240,000 homes in the foreclosure inventory, according to CoreLogic data.
Faced with a swollen supply of distressed properties, more buyers have responded positively to distressed properties' main attraction: their price tags. And it's not only investors looking to flip or rent out a foreclosure after buying it with cash who are going after these properties.
Best Beach Towns for Buying Foreclosures
Is Buying Foreclosures Now 'Sexy?'
Average sale price: $355,604
Average foreclosure discount: 28.17%
The quintessential California beach town, Santa Cruz is located about 75 miles south of San Francisco. It is comfortably situated between thickly wooded mountains and clean sandy beaches. The Santa Cruz boardwalk entertains children and adults alike: It has an amusement park complete with roller coaster, arcades, mini-golf, bowling, shopping and outdoor concerts.
Average sale price: $237,405
Average foreclosure discount: 30.34%
The Town of Barnstable is comprised of several famous Cape Cod villages, including Hyannis. It's also close to the islands of Martha's Vineyard and Nantucket. Hyannis has a large natural harbor and is the largest recreational boating port on Cape Cod. The Kennedy Compound is also located in Barnstable, in the village of Hyannis Port.
Average sale price: $345,799
Average foreclosure discount: 30.56%
Honolulu, Hawaii's capital located on the island of Oahu, offers top quality surfing, famous Waikiki Beach and pristine hiking trails. It also has an exemplary public transportation system, which connects its world class shops and restaurants to its relaxing beaches.
Average sale price: $161,819
Average foreclosure discount: 30.38%
Since Las Vegas isn't on the beach, your best bet for being able to gamble and ride waves is Atlantic City, N.J. Besides its familiar street names (see: Monopoly), the city has a world famous boardwalk lined with casinos, shops, restaurants and an amusement park.
Average sale price: $274,077
Average foreclosure discount: 38.80%
After a long day enjoying the sunny beaches or hiking in majestic mountains, spend the night tasting some of the finest California wines in Santa Barbara's wine country. The city also has a temperate climate year-round, so it is a great place to live if you want to avoid snowy winters and scorching summers.
Average sale price: $156,148
Average foreclosure discount: 40.43%
Marco Island has miles of white-sand beaches and beautiful year-round weather. Naples, just north of Marco Island, also offers white sand beaches and has world class golf courses and exciting outdoor activities. Naples is also close to Everglades National Park.
Average sale price: $78,851
Average foreclosure discount: 44.38%
Texas has beaches, too! Miles of the Gulf of Mexico shoreline extend across Corpus Christi, where there are plenty of sites and attractions. Visit the U.S.S. Lexington Museum or the Texas State Aquarium. For more outdoor adventures, check out Mustang Island State Park, where you can enjoy fishing, bonfires, kayaking and camping.
Average sale price: $93,188
Average foreclosure discount: 45.11%
Another outdoorsy paradise, Vero Beach offers -- not surprisingly -- miles of beaches and is home to the Pelican Island National Wildlife Reserve. Enjoy airboat tours, scuba diving, snorkeling and many other water and beach sports.
A significantly higher proportion of homebuyers interested in foreclosures now say they intend on living in those homes. Just 6.9 percent of buyers today say that they want to buy foreclosures for investment purposes, down from 13.2 percent in 2009, according to Realtor.com.
That's because the "irrational exuberance" of a freewheeling young crop of borrowers, the owner-occupants of yesterday who fueled the housing bubble, has morphed into "crazy psycho caution," Faranda says. American buyers today want to hedge their bets, and there's no better way for them to do that, Veranda says, than to snag a home at a bargain rate.
Laura Yarbrough, who lost her Munson, Mass., home to a tornado, is on the hunt for a foreclosure to live in. She is one of many buyers searching in a less-then-stellar economic climate for bargain purchases.
"I just figured I get more bang for my buck," she says.
She seems poised to do just that in light of today's depressed foreclosure prices: The risk-management approach of purchasing a heavily discounted property would, in the event of a continued slide in home prices, cushion potential losses much more than in years past.
Peter Vulaj, who has flipped distressed properties, including foreclosures, for the past 15 years, says discount margins on foreclosures over the last few years have been as high as he's ever seen them.
They used to hover around 10 to 12 percent below market rates, but since the housing meltdown, the discounts have skyrocketed, says Vulaj, who lives in Putnam Valley, N.Y. Today, the average sales price of a home in some stage of foreclosure is 27 percent below the average sale price of a non-distressed home, according to RealtyTrac.
Ariana Loucas, who worked in mortgage lending and is now a Realtor in Columbia, Md., says one reason for the unusually steep discounts is that banks, seeking to avoid the tangle of legal and maintenance costs associated with foreclosures, are willing to accept even steeper discounts on foreclosures than in the past.
"[Buyers] believe that banks are really willing to negotiate to get the properties off their books," Loucas says.
Mery Swanson of Gig Harbor, Wash., says that she may start searching for a distressed property in the coming months. She sees it as a shrewd investment, since, by her measure, home prices are set to rise.
Cities With The Most Homes in Foreclosure
Is Buying Foreclosures Now 'Sexy?'
Foreclosure rate: 1 in 347 homes
Number of homes: 942,312 (24th most)
Foreclosures (April 2012): 2,717 (16th most) Homeprice decline from peak: -54.2% (sixth largest decline)
Median home prices in the Orlando area fell by 54.2 percent from their peak in the second quarter of 2006 through the end of 2011. Of the 50 most populous metro regions in the U.S., the Orlando-Kissimmee area has the tenth highest foreclosure rate in April, of one in every 347 homes. Orlando had 2,717 new homes in foreclosure this past April, up 12.9 percent from the 2,406 in April 2011. The forecast for the future is similarly bleak. Fiserv projects Orlando homes to continue to lose value between the fourth quarter of this year and the fourth quarter of 2013, predicting a 1 percent decline in prices over that time period.
Foreclosure rate: 1 in 321 homes
Number of homes: 3,797,247 (third most)
Foreclosures: (April 2012): 11,840 (The most)
Home price decline from peak: -36.8% (twelfth largest decline)
From their peak in early 2007, home prices in Chicago fell 36.8 percent through the end of 2011. In April, the Chicago-Naperville-Joliet metro area had the largest number of new homes in foreclosure among the 50 largest MSAs, at 11,840. This represented an increase of 25.5 percent from April 2011 when 9,433 homes entered foreclosure. However, the number of foreclosures represents a 7.63 percent decline from March, when the Chicago area also led all metropolitan areas with 12,818 foreclosures. Another positive sign for Chicagoans: Home prices are projected to rise 6.3 percent annually through 2016, according to Fiserv.
Foreclosure rate: 1 in 315 homes
Number of homes: 1,353,158 (17th most)
Foreclosures: (April 2012): 4,295 (eighth most)
Home price decline from peak: -48% (eighth largest decline)
Residents of the Tampa, Fla., metro area watched the median home price in the region fall to $137,000 in the fourth quarter of 2011 -- a 48 percent drop from its peak. The region recorded 4,295 foreclosures in April 2012. To make matters worse, that number is up from the April 2011 figure. Then, only 2,701 homes in the area were new to foreclosure, meaning that foreclosures increased by 59 percent in the past year. One in every 315 homes in this MSA had a foreclosure start this past April.
Foreclosure rate: 1 in 313 homes
Number of homes: 1,798,501 (12th most)
Foreclosures: (April 2012): 5,755 (sixth most)
Home price decline from peak: -56% (third largest decline)
Home prices in the Phoenix region -- the country's twelfth-largest metropolitan area by housing units -- declined by 56 percent from their 2006 peaks through the end of 2011. Although this accounted for the third-largest decline in home prices among all metropolitan areas, the Phoenix region posted a 22.64 percent decline in foreclosures from March, as the number of new foreclosed homes fell from 7,439 to 5,755. Likewise, in the last year, the number of foreclosure starts in the area fell by 44.44 percent, from 10,358 in April 2011 to 5,755 this past April.
Foreclosure rate: 1 in 309 homes
Number of homes: 410,031 (the least)
Foreclosures (April 2012): 1,326 (23rd least)
Home price decline from peak: -19.3% (25th largest decline)
Home prices in the Salt Lake City area declined by roughly 20 percent from their peak in 2007 to the fourth quarter in 2011, which is a modest decline compared to other regions on this list. Nevertheless, foreclosure rates were higher than all but five of the largest metros in the country. Compared to the 1,406 foreclosures in April of 2011, April 2012's foreclosures declined by 5.7 percent. This metro area is one of the few on the list that analysts are bullish about; home prices are projected to increase by 9.5 percent from this year's fourth quarter to the fourth quarter in 2013.
Foreclosure rate: 1 in 298 homes
Number of homes: 2,165,495 (ninth most)
Foreclosures: (April 2012): 7,271 (fourth most)
Home price decline from peak: -35% (14th largest decline)
As of the fourth quarter of 2011, home values in Atlanta fell by 35 percent from their peak. The Atlanta area has the ninth most housing units of any region on the list, at 2,165,495, and the median price of these homes was just $110,000 in the fourth quarter of 2011. To make matters worse, the area's April 2012 foreclosure figure was a staggering 7,271 homes -- the fourth most among the nation's largest cities. Things may be on the upswing though -- since the number of homes in foreclosure fell by 11 percent from the prior month.
Foreclosure rate: 1 in 277 homes
Number of homes: 871,793 (23rd fewest)
Foreclosures: (April, 2012): 3,147 (twelfth most)
Home price decline from peak: 54.7 percent (fifth largest)
The first California metropolitan region on this list, the Sacramento-Arden-Arcade-Roseville area had one in 277 homes in foreclosure in April. With home prices down 54.7 percent from their high at the end of 2005, the Sacramento area registered the fifth-largest decline in home prices. The area had the twelfth-most foreclosures in the U.S. However, foreclosures are down by 39.01 percent from last year, when April 2011 had 5,160 homes in foreclosure. Additionally, the number of foreclosures also decreased by 26.7 percent from the previous month, from 4,294 to 3,147. Fiserv expects home prices in the area to rise 6.3 percent annually through the fourth quarter of 2016.
Foreclosure rate: 1 in 273 homes
Number of homes: 2,464,417 (fifth most)
Foreclosures: (April 2012): 9,031 (third most)
Home price decline from peak: 54.2% (seventh largest decline)
The Miami metro region topped all Florida regions in the number of new foreclosures. It also ranks third in new foreclosure rates among the 50 largest metros with 9,031 foreclosures in April, 2012 -- a rate of one in 273. While foreclosures in the area decreased between March, 2012, and April, 2012, to the tune of 9.2 percent, the future appears gloomy. Prices in this region are forecast to fall another 3.8 percent between the fourth quarters of 2012 and 2013.
Foreclosure rate: 1 in 249 homes
Number of homes: 840,343 (22nd fewest)
Foreclosures: (April 2012): 3,378 (tenth most)
Home price decline from peak: 61.8% (the largest decline)
Home prices in Las Vegas, the poster child of the housing crisis, plunged by 61.8 percent from their peak in early 2006 through 2011 -- the greatest decline of any of the nation's 50 largest metros. Although new foreclosures in the Las Vegas-Paradise region declined by 66.1 percent to 3,378 over the past year, the number of foreclosures in April represents a slight increase over March, when 3,301 new homes were in foreclosure. Making matters worse, prices are expected to fall by another 3.3 percent between the fourth quarter of 2012 and the fourth quarter 2013, according to Fiserv.
Foreclosure rate: 1 in 213 homes
Number of homes:1,500,344 (14th most)
Foreclosures: (April 2012): 7,049 (fifth most)
Home price decline from peak: -56.6% (second largest decline)
As of the fourth quarter of 2011, prices in the Riverside metro area fell by 56.6 percent from their peak, the second largest drop among top-50 metros. In addition, this region is first in terms of now foreclosure rate, at one in 213. While the number of homes (1.5 million) ranks 14th of the 50 largest regions, the area's new foreclosure count for April, 2012, reached 7,049 -- fifth highest overall. It appears, however, that, the situation is improving; between March 2012 and April 2012, foreclosures dropped 10.8 percent.
"Buying a foreclosed home at the rates and the prices they're going for? That's a great deal right now," she says.
Across the street from Swanson, a 20-something couple just purchased a recently renovated foreclosure, she says, adding that they bagged a great deal.
People like them are "getting practically brand-new houses, even though they've been foreclosed-on," she says.
Indeed, in addition to offering a vast supply of homes running at unusually steep discounts, much of today's foreclosure inventory is made up of homes that defy the stereotype of beat-up buildings riddled with defects.
They may have recently undergone renovations paid for by homeowners who had not anticipated a drop in home values, or they may even have been recently constructed by hapless builders who built on spec just before the market downturn.
"They're virtually new properties in many ways, if you are buying them today," Blomquist says of such properties.
Many of today's foreclosed homes are also occupied by their distressed owners, who, even as they face repossession, maintain them and preserve their quality.