The Housing Chronicles Blog: Investors returning to Foreclosure Central: Stockton, CA

Tuesday, June 3, 2008

Investors returning to Foreclosure Central: Stockton, CA

A few months ago (and recently re-run), 60 Minutes aired a story on the housing market with a particular focus on the basket case that was Stockton, California, which had become sort of a ground central for rising foreclosures. Certainly one benefit of the crashing prices in Stockton, however, has been the interest by investors, who can increasingly buy properties that are cash-flow neutral or positive if rented out. From an story:

In some areas of California, so many foreclosed homes are available to buy on the cheap that real estate agents are discouraging prospective sellers from even putting their houses on the market.

Perhaps the most extreme example of this is Stockton, about 85 miles east of San Francisco, where roughly three of every four homes for sale are in or on the path to foreclosure...

Worse for people trying to sell their homes, lenders in possession of houses and condominiums may keep their fire-sale in full swing for months to come to attract investors to a market near the top of U.S. surveys of areas hit by foreclosures...

More listings would add pressure on local home prices. But they may only hold prices down rather than drag them lower because investors are slowly coming to Stockton in search of bargains, and in some cases they are in bidding wars, albeit at comparatively low prices.

"We heard yesterday there were 36 offers on one house," said Terry Hull Sr., a veteran Stockton property manager and owner of property management company W.T. Hull Co Inc.

Hull said he, too, may soon put offers on local properties because they have become so cheap: "We're going to buy about 50 houses because we know it's an opportunity you rarely see."...

Distressed borrowers who manage to sell their houses are in many cases able to rent equivalent properties for about half the cost of their monthly mortgage payments. "I don't know of anybody who has been foreclosed who is moving into an apartment," said Paul Jacobson, an associate at W.T. Hull Co.

Investors have taken notice that rental demand in Stockton is on the upswing while home prices have fallen, providing an opportunity to turn foreclosures into profits, said Cesar Dias, a Stockton real estate agent who arranges bus tours of foreclosed properties...

Dias said one foreclosed home he showed last month sold for $80,000, or $11,000 above its asking price, after 12 days on the market. The two-bedroom, one-bathroom house may rent for up to $1,000 a month and generate a monthly profit of up to $400.

Investors likewise pounced on a three-bedroom, three-bathroom home in a gated subdivision that Dias just showed. It has at least three offers at its $220,000 asking price, he said. "People are cherry-picking and finding the right ones," Dias said. "They see prices are at a bottom."

"Do I see the tide turning? Yes," Dias added.

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