Home buyers and investors in Illinois could save up to 40 percent on a foreclosure home, according to a recent report by RealtyTrac. The report was released last week. It compared the sales prices for distressed and normal properties.
A “distressed” home is in some stage of the foreclosure process, meaning the homeowners have fallen behind on their mortgage payments. A “normal” sale occurs when the homeowner is current on mortgage payments.
According to the RealtyTrac report, Illinois foreclosure homes offer the potential for big savings. How big? The average discount for distressed properties in Illinois was the second-highest in the nation, at 40 percent. Ohio had the best foreclosure deals in the U.S., with an average discount of 41 percent.
Granted, some foreclosures are discounted more steeply than others. And the discounts may vary from one city to another within the same state. These numbers represent the average of all distressed and normal sales across the state of Illinois. But it’s still a noteworthy statistic for home buyers. This becomes obvious when you plug in some numbers.
Consider the following scenario:
Two Illinois homes have a current market value of around $300,000. One is a bank-owned foreclosure, and the other other is a regular listing. If the distressed property were discounted by 40 percent (the average cited in the RealtyTrac report), it would be sold for around $180,000. The normal listing would go for $300,000, give or take a few grand.
This is a realistic scenario that shows the potential for savings when buying a foreclosure home in Illinois. Of course, not all distressed properties will be discounted this steeply. But the potential is there.
Plenty of Illinois Foreclosures Available
Foreclosure inventories aren’t going to shrink anytime soon. In fact, distressed properties currently account for 30 percent of all homes for sale. To be exact, Illinois foreclosures made up 29 percent of home sales in the first quarter of 2011. At the time of publication, there were more than 13,000 bank-owned homes in the Chicago metro area alone (source: RealtyTrac).
So a home buyer would be wise to consider these properties in addition to regular listings. With so many foreclosed homes available, and with such a high potential for savings, the savvy buyer will consider all properties available.
Buying a foreclosed home directly from a bank is just one way to purchase a distressed property. Properties can be purchased earlier in the foreclosure process as well, either through a short sale or a real estate auction.
Downward Pressure on Home Prices
Dirt-cheap real estate is good news for home buyers and investors. But it’s bad news for homeowners, and for the Illinois real estate market in general. There are three things that drive property values down — high inventory, low demand, and negative sales-price trends. The foreclosure situation in Illinois is affecting all three of things, either directly or indirectly.
The high number of foreclosed homes adds to an already bloated inventory. The lower sale prices for distressed properties push comparable sales figures down, which has a negative effect on all property values. And falling prices tend to keep would-be home buyers on the sidelines. This is why home prices in most Illinois cities have been dropping over the last few months, according to the Case-Shiller Home Price Index.
In the short term, however, home prices in Illinois appear to be more stable. According to the latest market report from Altos Research, a real estate statistics provider, prices in the Chicago metro area rose slightly in May. But the year-over-year numbers still show a negative trend. Whether prices rise or fall in the coming months will largely depend on the foreclosure situation.