This is my column for this week from the Arizona Republic (permanent link).
“U.S adults” may not want foreclosed homes, but homebuyers sure do
Did you see in the news where only 47% of U.S. adults would consider buying a foreclosed home?
An amazing number, isn’t it? What does it mean?
Almost nothing, of course. The real estate market in Phoenix, along with many, many other cities, is dominated by foreclosed homes right now. They are virtually all that is selling.
So how could so many homes be selling if so many people are averse to buying them?
This is a nice lesson in the uselessness of public opinion polls. “U.S. adults” are not homebuyers. Homebuyers are homebuyers. Asking U.S. adults how they feel about sushi or blackberry wine will tell you nothing about their sales, either.
What the survey does tell us is that the news has gotten out about the sometimes difficult process of buying a foreclosed home — especially a short sale — and about the often dismal condition of those homes.
And yet, foreclosed homes are selling and virtually nothing else is.
Because they’re cheap, that’s why. Even in the nicest neighborhoods, a lender-owned home will sell at a discount of 50% to 80%, compared to owner-occupied homes. In not-as-nice communities in the West Valley, you can pick up a stucco-and-tile 3 bedroom, 2 bath, 1,500 square foot home with a two-car garage for $50,000.
As I write this, there are 120 homes like that, all built 1995 and later, listed for $75,000 or less.
Let the price rise to $100,000 and there are 690 available right now.
Last month, 191 of those homes sold for $100,000 or less. That’s an implied absorption rate of 3.61 months, arguably a seller’s market.
So on the one hand an undifferentiated population of U.S. adults, who may or may not be in the market to buy a home, has a generally negative opinion of foreclosed homes.
And on the other hand there is a land-office business in foreclosed homes.
We will see many years’ worth of foreclosures in our market. How we feel about that in the abstract makes no difference.