The Chicago metro area ranks as No. 10 on RealtyTrac's list of best places to buy a foreclosed home, despite a sluggish job market. (Carolyn Kaster/AP/File)
10. Chicago – 46 percent discount on foreclosed homes
Typically, real estate investors want to put their money in growing markets that haven't been discovered yet. Metropolitan Chicago may not have the greatest job growth – half the nation's average annual rate – but its housing market is ripe with opportunities. After falling 37 percent from its housing bubble peak, median prices have rebounded less than 4 percent, according to the S&P/Case-Shiller housing price index. The metro area boasts a healthy 36 months' supply of foreclosed and soon-to-be-foreclosed homes and they're selling at a whopping 46 percent discount of other home sales. That's the biggest discount of any of RealtyTrac's Top 10 best metros to buy a foreclosed home, helping Chicago secure the No. 10 spot.
"The Midwest has been doing a lot better," says Ken Fears, an economist with the National Association of Realtors (NAR). Nationally, "it's hard not to be upbeat when you look back, historically speaking. We're at the nascent level of what will be a protracted, slow, but steady growth in the economy."
When it comes to foreclosures, he suggests looking at judicial states – states that involve the courts in foreclosures, which typically slows the process of moving properties to market. The great wave of foreclosures has already peaked in nonjudicial states like California and Arizona. But in judicial states like Florida and New York, a second wave of foreclosed homes is starting to hit the market, keeping prices low and investor interest high.
9. Orlando, Fla. – 19 percent discount
Unlike Chicago, Orlando’s strong points aren’t deep discounts or a vast supply – the metro has only a 19 percent discount on foreclosures and a smaller inventory of foreclosed homes to sell. But it has other things going for it, including a 64 percent jump in foreclosure activity between 2011 and 2012.
Orlando’s economy is also on the rebound. The central Florida metro's employment growth matches the national average. The median sales price for a single-family home has jumped 8.5 percent in the past year, according to the NAR. One reason: Hedge funds, investors, and institutional buyers are moving into Orlando to scoop up foreclosed properties the way they already have in other markets.
Foreclosure sales were nearly a third of all home sales last year. After investors poured money into Las Vegas and Phoenix, home prices jumped 20 percent and 34 percent in those areas, respectively. Thus, metro Orlando probably offers a limited window for getting a great deal in housing.
8. Poughkeepsie, N.Y. – 28 percent discount
The Queen City of the Hudson River is home to Vassar College, an IBM plant, and foreclosed homes – lots of them. The metro area has a 92-month supply of bank-owned properties, the second-biggest backlog on RealtyTrac's Top 10 list. They're selling at a 28 percent discount. The area's employment grew 1 percent over the past 12 months and 2.5 percent over the past three years, which trails the national average of 4 percent. The median housing price is just under $200,000 and is up 4 percent over the past year, according to Trulia, an online real estate information site.
7. Jacksonville, Fla. – 32 percent discount
Jacksonville has decided to turn the streetlights back on in its business parks, rescinding a cost-cutting measure after real estate companies complained it was hindering business recruitment. The move comes none too soon, because Jacksonville's economy seems to be slowing.
In 2010 and again in 2011, the metro area created roughly 8,000 net new jobs. In 2012, the increase was only 5,000 jobs.
The residential real estate market looks healthier. Home prices were up 7.3 percent in the fourth quarter of 2012 compared with a year earlier. With 34 months' supply of foreclosed homes selling at a 32 percent discount, there are deals to be had. The housing market may be a little stronger because Jacksonville has the highest homeownership rate of the 25 most populous US cities, according to a study by website NerdWallet.
6. Tampa, Fla. – 27 percent discount
The host city of the 2012 Republican National Convention has seen its economy rebound, but the housing market hasn't caught up yet.
Employment grew 1.7 percent over the past year and 5.5 percent in three years, beating the national average. (It's the only metro area on this Top 10 list to do so.) But after seeing home prices nearly fall by half during the housing debacle, the metro area has only seen a 7.6 percent rebound in real estate prices, according to the Case-Shiller index.
Add to that an estimated 34 months’ supply of foreclosures selling at an average 26.6 percent discount to other homes, the metro market remains a place where investors or would-be homeowners should be able to find a deal.
5. Lakeland, Fla. – 15 percent discount
Its economy isn't inspiring. Lakeland is tied with Chicago as the metro with the highest unemployment rate – 8.6 percent – among the Top 10 list. Unique among those Top 10 metros, it continued to lose jobs after the Great Recession and only began to see job growth in 2012.
On the plus side, the Detroit Tigers baseball team is back in town for spring training. The weather is warming up – and so is the real estate market. Home prices are up 10.6 percent from a year ago, according to Trulia. Home building activity made some impressive gains last year, especially in the upscale end of the market.
Of the metros on RealtyTrac’s Top 10 list, Lakeland has the smallest discount on foreclosure properties, which might signal that the window of opportunity is closing in Lakeland, even though RealtyTrac estimates it has a 33 months’ supply of foreclosed homes.
4. New York – 40 percent discount
As important as it is as a housing market, the metro New York area (which includes Long Island, northern New Jersey, and parts of Pennsylvania) has not been particularly robust. Home prices have barely recovered from the trough last March, according to Case-Shiller. And they’re still down a quarter from their peak in 2006.
Job growth is just a little below the one-year and three year national average.
Investors may be particularly interested in the New York metro area because it has the largest supply of foreclosures of any of RealtyTrac’s Top 10 metro areas – 97 months – and they’re selling at a 40 percent discount to other homes. That’s probably because a second wave of foreclosures is hitting the market in judicial states such as New York and New Jersey. Nationally, bank repossessions fell 17 percent last year, but they rose 55 percent in New Jersey, according to RealtyTrac.
3. Albany, N.Y. – 35 percent discount
By the standards of New York State, the real estate market in the state’s Capital District, which includes nearby Troy and Schenectady, has not distinguished itself. Prices have climbed 5.9 percent in the last year, according to the NAR, which is far better than Binghamton (minus 5.7 percent) but not as good as Elmira (9.7 percent).
Since it didn’t participate much in the housing bubble in the 2000s, Albany has escaped most of the housing bust. As a place to buy foreclosures, however, the metro area stands out. It has a projected 86 months’ supply of foreclosed homes. In such a slow-moving market, investors may not make much in terms of appreciation. But with foreclosed properties selling at an average 35 percent discount, there’s room for profit.
2. Rochester, N.Y. – 25 percent discount
From a fiscal point of view, the city of Rochester is hurting. The city faces a deficit (and a state cap on local property taxes makes it difficult to rely on taxes to bridge the gap). Its school system is heavily in the red; even its symphony is short of money.
But as a real estate market, the metro area may well be a great place to invest in foreclosures, according to RealtyTrac. Home prices are a third lower than in Albany and have risen only 4.3 percent over the past year, slower than in Albany, and at half the national rate, according to the NAR. And while foreclosures sell at less of a discount than Albany – 25 percent – Rochester sports a robust 78 months’ supply.
1. Palm Bay, Fla. – 28 percent discount
The No. 1 place to buy foreclosed property is not among Florida’s biggest metros but in midsized Palm Bay, halfway between much larger Jacksonville and Miami. Home to the Kennedy Space Center, it is commonly known as Florida's "Space Coast." (Its 321 area code was specially awarded to recognize the 3-2-1 liftoff countdown sequence at Kennedy).
After the end of America's shuttle program in 2011, some 8,000 people lost their jobs at the space center. But the economy seems to have bottomed out and in 2012 added some 4,000 new positions.
The housing market has been on a tear, with prices rising 14.7 percent last year, according to the NAR, putting Palm Bay in the top 25 metros for price appreciation. Making it No. 1 on RealtyTrac's Top 10 foreclosure list was a 309 percent increase in foreclosure activity last year, more than double the increase in No. 2 Rochester. So even as the real estate market heats up, Palm Bay still has a 34 months' supply of foreclosed homes, selling at an average 28 percent discount.