Housing outlook is mired in a swamp of foreclosures

If you were hoping to sell your house for top dollar in the next few months, you'd better wait.

Until 2014, or maybe later.

That's when 54 percent of Americans responding to a semiannual survey by two real estate search engines believe the housing market will recover from its now four-year-old malaise.

Six months ago, when Trulia and RealtyTrac had Harris Interactive poll more than 2,000 adults 18 and older online, 42 percent estimated 2014 as the turning point.

Some people, though, never give in. In November, 5 percent said housing had recovered. And in April, 5 percent said the same thing.

"We are backtracking," Trulia chief executive officer Peter Flint said during a conference call Wednesday with RealtyTrac chief economist Rick Sharga, noting that the jobs needed to buy and pay for a house weren't growing at the rate everyone had hoped.

"We have a long way to go before consumers feel secure enough in jobs to buy a house," Flint said.

As more time passes and the improvement doesn't materialize, consumer confidence wanes. In 78 cities, it is cheaper to buy a house than to rent, but renters are growing more hesitant about home-buying, saying they may do so "in two years," Flint said.

The Trulia boss predicted 18 months more before prices stabilize, but with "recent double dips [in prices] and declines, buyers can expect a big summer clearance of real estate."

What do even hesitant buyers plan to buy?

Foreclosures.

What kind of price break do they expect to get?

Fifty percent.

How much do they get really?

A bargain of 30 to 40 percent, depending on the location. In California, expect a whopping 46 percent reduction in the hardest-hit locales. The average discount last year nationwide was 36 percent.

Adam Novick of Philadelphia said he was new to the foreclosure market, but had bought one unit in Center City as a residence and was looking at others.

Here are his observations about the local market:

There appear to be fewer foreclosures in Center City than elsewhere in the city and suburbs.

They can be a bargain. He recommends doing a cost/square-foot analysis and evaluating amenities, condo fees, and taxes to determine what carrying costs will be.

Exact figures are hard to define, but a low-rise condo unit needing work can range from $175 to $225 a square foot.

Based on what you find using these analytical tools, discounts can be as much as 25 percent net.

Cash-only sales will motivate sellers of foreclosed properties to sell quickly and at a bigger discount.

Sharga keeps at least two fingers on the pulse of the foreclosure crisis, and the readings don't look so good:

There are more than 900,000 bank-owned properties that have been taken back after foreclosure, but fewer than 30 percent are relisted for sale.

There are 1.2 million properties in some stage of foreclosure. It takes 600 days on average to complete the process in Florida, 800 days in New Jersey and New York.

Four million more properties are in some stage of delinquency, meaning people are behind in their mortgage payments.

"Plenty of distressed inventory, with a boatload yet to come," Sharga said.

In the survey, 56 percent of renters and 47 percent of owners said they were interested in buying foreclosures, but in 2010 that interest resulted in 26 percent of single-family sales - 530,000 - not enough to burn through the huge inventory of houses.

There is two years' worth of bank-owned inventory, experts estimate.

Even if banks foreclosed on not a single house this year, there would be a two-year supply. In a lot of hard-hit places, lenders appear to be holding back properties rather than putting them back on the market, because demand isn't there.

Since 2005, for that matter, there was just one quarter - the first in 2009 - when more properties were purchased than lenders had repossessed.

Most buyers of bank-owned properties in 2010 paid cash or were first-timers using Federal Housing Administration financing. In some really hard-hit areas, lenders decline loans to qualified borrowers because of worries that the property may not hold even its present - and distressed - value.

These high levels of foreclosure depress prices and keep home-building at historically low levels, Sharga said. Because new-home sales stimulate price appreciation, and practically nothing is being built, people aren't putting houses on the market.

How much longer will foreclosure stay at these high levels?

The potential, Sharga said, is through 2013.

This year will still bring bottom-of-market prices, but then "they will flatline until 2014," he said.

Just when most people believe housing will recover.

Maybe.