Selling your home? Beware of Foreclosure in the Neighborhood
We've all heard the old adages about being a nosy neighbor, but in the
current real estate market you might actually benefit from taking the
time to find out what is going on with your neighbor. There is
increasing evidence that there is a distinct ripple effect when it comes
to home foreclosures within neighborhoods. Savvy homeowners who are
concerned about the value of their own home would definitely be wise to
keep an eye on their surrounding neighbors in order to anticipate
trouble before it arrives.
It is estimated that there will be almost 70 million homes this year
alone that will experience a price decline of at least $7,000. All
total, this drop in property values could amount to some $500 billion.
This can certainly spell trouble for homeowners who had planned to use
their home equity in order to finance items such as college tuition,
retirement, medical expenses or to start a small business. As a result of the decline in property values,
using their home equity
may no longer be an option for many homeowners.
All total, foreclosures could impact more than 90 million neighboring
homes over the next four years. There is no getting around the fact that
as the foreclosure crisis grows worse, the effects will spread. Since
2007, the rate of home foreclosures has risen rapidly. Subprime
borrowers are not the only homeowners to be affected, either. Even
homeowners who had good credit have since been forced to default on
their mortgages in light of the failing economy.
The news certainly is not getting any more encouraging either. The
Mortgage Bankers Association reported that during the first quarter of
the year, 1.4% of all first mortgages went into foreclosure. From the
fourth quarter of 2008, that is a 20% increase. It was estimated that between
now till 2012, approximately 9 million homes would
eventually go into foreclosure.
The spillover effect linking the mortgage crisis to further foreclosures
and neighborhood home values certainly cannot be denied. According to
the Center for Responsible Lending in a study that examined this very
effect, homeowners who live within 300 feet of a residential property
that has been foreclosed upon will experience a 1.3% reduction in their
own home value. Homeowners that live between 300 feet and 500 feet of a
foreclosed property will still be impacted, experiencing a 0.6% drop in
value.
Typically, the homes that will be impacted the most by foreclosed
properties are those that are closer because they will tend to be more
impacted by the effects of a foreclosed property, which typically
include general disrepair such as broken windows, peeling paint and
overgrown lawns.
If you live near a foreclosed property, be aware that the worst time to
consider refinancing your home, cashing out the equity or selling it is
right before the bank actually takes the title to the foreclosed
property. Generally, this is when most properties experience the
greatest period of neglect, a situation which can definitely impact your
own situation if you live nearby. Once the bank has actually taken the
title to the property, the situation could potentially improve as there
are some lenders that will make an effort to improve the appearance of
the property in order to attract buyers.
If you are wondering when the best time would be to sell your home or
try to refinance it, there is no doubt that the ideal time would be when
your neighbors are still doing well financially. Of course, this is a
situation that can often be difficult to ascertain. In most cases, the
biggest trigger for mortgage default is job loss. As a result, if you
discover a neighbor has become unemployed, it is a good idea to begin
carefully considering whether you should get out while you can.
For homeowners who do not live immediately near a home that has been
foreclosed upon but who are still within the neighborhood, it is
important to know that in most cases by the time the bank is able to
actually sell the home, values will have bottomed out. Ideally, the best
option is to try to ride out the situation and avoid panicking. If you
had planned to stay in your home long term and were not planning to sell
or refinance your home in the near future, there is a good chance that
you will not be adversely affected as experts predict that the market
should eventually even out. On the other hand if you have plans for your
home within the next two or three years it is definitely a good idea to
keep an eye on the neighborhood.
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