Housingwire Magazine took on the task of ranking the top five and bottom five distressed property markets in their March issue. The rankings were preceded by an overview of the selection methodology. The tabulation criteria for the rankings included: “Unemployment, year –to-date change in foreclosure filings, average discount on distressed-home sales compared with normal transactions and the length of the foreclosure timeline in the respective state. Foreclosure data comes from RealtyTrac and unemployment data is from the U.S. Department of Labor.”
The analysis is basically a measure of which markets were found to be most and least attractive to large scale investors who often employ a buy, rent and hold strategy.
Cities ranked high on the list of “Top Distressed Property Markets” are typically cities with significant quantities of steeply discounted inventory, and major upside profit potential. “Bottom Distressed Property Markets” are often those with healthy economic profiles, low unemployment levels, low foreclosure inventories and slow but steady price appreciation.
Being on either list has an upside. Markets that are in recovery are often attractive to investors and rank among the “top distressed markets” while markets which have already recovered and have price appreciation are typically less attractive for investors and rank among the “bottom distressed markets.” Markets with higher unemployment rates are almost always less appealing to investors.
Top Distressed Property Markets
- Minneapolis-St. Paul – Not a foreclosure hotbed. Good economy. Significant foreclosure inventory. Low unemployment at 5.1%. Foreclosures down 44% year over year. Non-judicial foreclosures take only 184 days.(4th Qtr. 2011)
- Houston – State laws favorable to investors. Nation’s shortest foreclosure interval at 90 days. Foreclosed property discount averages 38%. (3rd Qtr. 2011) Low unemployment at 7.6%.
- Phoenix – High volume of foreclosures following “dire market collapse”. Foreclosure discount rate of 26%. Investors “looking to ride a potential market rebound.”
- Atlanta – High inventory of foreclosures—48,500 filings, 37% lower than previous year. Buyers captured property discounts of nearly 50% during 2011. Non-judicial foreclosure timeline: 142 days. Unemployment at 9.2% in November.
- San Francisco – Bay Area buyers enjoyed 51% discount on third quarter REO sales. Relatively low unemployment rate of 8.7% compared more favorably than Los Angeles options.
Bottom Distressed Property Markets
- San Joaquin Valley, CA – (Bakersfield, Fresno, Modesto, and Stockton)—High unemployment 13.4 % (Bakersfield)-15.7% (Fresno). Low avg. foreclosure discount and low “year-over-year change in distressed filings.” Low foreclosure inventory potential at 8,000 filings compared to 48,500 for Atlanta.
- Las Vegas – High unemployment of 12.5% hampers re-emerging economy. Market gains contribute to the low 20% average REO discount compared to private home sales. Foreclosure timeline of 390 days slows availability of inventory.
- Tampa – Judicial foreclosure timeline: 806 days. Foreclosure discount of just 25% is not as enticing to investors as other markets. Unemployment rate: 10.3%.
- New York City – Foreclosure timeline averaged a whooping 1,019 days (nearly 3 years) in the fourth quarter of 2011, possibly nation’s longest.
- San Antonio – Ranks high in “best-place-to-live” surveys. Housing prices are appreciating rather than depreciating. City is not as attractive to investors because of low number of foreclosure filings – 5,503 versus 48,500 in Atlanta for example. Appreciating property values deter investors seeking steep discounts.
Markets change constantly. As always independent research with the help of a real estate professional is recommended.
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Source: Housingwire Magazine. The 2012 Investments Issue. Article: Distressed Opportunities, Larger Players Prep to Enter the Market.