Foreclosure Discounts Shrink


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Foreclosed homes just aren't the bargain they used to be.

According to Zillow, the average discount on a foreclosed residential property in September was 7.7 percent, compared to what a homebuyer would pay for the same home in a conventional transaction. That's down from a high of 23.7 percent in August 2009.

In fact, in some of the very cities that were hardest hit by the foreclosure crisis, demand is now so strong there's little or no discount at all for buying a foreclosure. Zillow reports that in both Phoenix and Las Vegas buyers are currently paying the same for foreclosed homes as they are for nondistressed properties, while homebuyers in Sacramento and Riverside, California are realizing average discounts of only 0.7 percent and 1.2 percent, respectively.

In Florida, the average foreclosure discount in Miami-Ft. Lauderdale was a mere 2.6 percent, while the average reported for Orlando was 4.6 percent.

Not just for investors anymore

"The smallest foreclosure discount is found in places where competition for homes is so high, people there are willing to pay the same amount for a foreclosure re-sale that they would for a non-distressed home," said Stan Humphries, Zillow's chief economist. "Additionally, in areas such as Phoenix and Las Vegas, where not long ago one out of every two homes sold was a foreclosure re-sale, buying a foreclosure is no longer just for investors."

Humphries said much of the demand is being driven by regular homebuyers seeking to take advantage of historic affordability, a term describing the combination of low home prices and mortgage rates in comparison to prevailing incomes.

Compared to the same month one year ago, the average discount on foreclosed properties declined in over three-quarters of the metropolitan areas Zillow analyzed, and all areas are down from their post-crash peaks.

Despite the overall decline in foreclosure markdowns, sizeable discounts are still the rule in many metropolitan areas with lower demand for home sales. The biggest average foreclosure discounts were reported in Pittsburgh (27.4 percent), Cleveland (25.8 percent), Cincinnati (20.2 percent) and Baltimore (20 percent).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Real Estate

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