Since the Obama Administration launched its Neighborhood Stabilization Program to help neighborhoods severely affected by the growing number of cheap houses for sale, many nonprofit groups get into the task of buying, renovating and re-selling foreclosure properties.

But they are not the only groups that have developed an interest on foreclosure houses. Investors laden with cash also plunged into the foreclosure investing market. And it seems that they are getting ahead of the game as non-profits are finding it difficult to find cheap houses for sale because investors are always a step ahead of them.

The non-profit organization, Family Resources Inc. received around $400,000 from the U.S. Housing and Urban Development’s (HUD) Neighborhood Stabilization Program (NSP). The agency plans to use the funds to purchase duplexes, fix and rent them out to young adults who are transitioning from foster care. But so far, the search for good deals is fruitless.

Industry experts said that despite the huge number of foreclosure houses on the market, many nonprofits are having difficulty finding the right homes to purchase, renovate and resell or rent to eligible low-income families.

Non-profit organizations said that most often than not, they are being outbid by cash-rich investors who grab foreclosure houses, particularly in the low-end market. Officials of non-profits said that there are a lot of good deals on the market but there are always multiple biddings and many of them are not immediate cash buyers.

According to industry, the influx of investors laden with cash on the foreclosure investing market has resulted to few good deals left for local nonprofit organizations that are constrained by tight spending deadlines, limited funding and spending restrictions.

Experts said that also joining the fray for good foreclosure deals are first-time homebuyers who are motivated to make purchases by the federal tax credit of $8,000. Many first-time homebuyers prefer choice houses which means that they have set their sights on properties at the second or third tier.

The current trend in foreclosure purchasing has resulted to limitations on the number of local homes that would eventually be purchased under the NSP. In Manatee County, Florida, the local government received about $5.28 million NSP grant which has been distributed to several nonprofit organizations.

The city of Bradenton has received $2.57 million for its program to buy cheap houses for sale, fix and resell them and to assist buyers on down payment.

They pointed out that REO properties for sale still accounted for almost a third of the total sales, while 29 percent of deals were made to first-time homebuyers who took advantage of the $8,000 federal tax credit.

There were cities that showed a slowing down of home price declines, including Denver, Colorado and Boston, Massachusetts. But in some cities, homebuyers can still take advantage of the further price declines in REO properties for sale.

In Detroit, Michigan housing prices declined 4.9 percent last March, according to the Case-Shiller Index. The March decline was the steepest in the city’s history since January 1991. Currently, houses in the city are selling at prices comparable with 1995. Standard and Poor’s vice president of index services Maureen Maitland attributed the sharp price decline to the collapse of the automobile industry in the city.

New York City saw its steepest monthly home price decline in March at 2.5 percent. Maitland pointed out that the crisis and massive layoffs in the financial markets may continue to make New York City a haven for homebuyers looking for cheap REO properties for sale.

Meanwhile, median home prices in Portland, Oregon declined by 2.1 percent in March. Integrated Asset Services President Dave McCarthy said that the city is trying to stay above the national average of home prices, but is starting to experience some effects of the foreclosure crisis made even worst by its 11.6 percent unemployment rate which is above the national average of 8.9 percent.

In Phoenix, Arizona, home prices dropped 53 percent from their high in June 2006. Last March, the city’s home prices declined 4.5 percent. And the city is still suffering from overbuilding which could delay the turnaround of home prices by two or three years.

On the other hand, home prices in Minneapolis, Minnesota dropped 6.1 percent in March. The Federal Reserve Board’s Beige Book stated that more than 50 percent of March housing sales in the city were REO properties for sale.

Real estate experts agree that trends once again showed that where REO properties for sale are abundant, home prices are languishing below market values.

The NAHB said that the size of the typical single-family house has shrunk last year by 11 percent compared to the typical size in 2007, when families preferred bigger and bigger homes despite getting smaller and smaller in number of members. In 2007, the typical family house measured 2,500 square feet, a big increase from the 1,660-square-foot average in 1973.

Steve Davis, chief operating officer of Arizona-based builder Meritage Homes Corp., said his firm has built houses in the 4,500-square-foot range. But last year, his firm decided to limit sizes to only 2,800 square feet.

Builders said they have to build homes that can compete with cheaper foreclosed new homes. About 50 percent of total home sales have been foreclosed new homes sold at discounted prices.

Eric Landry, a real estate analyst for Morningstar, said builders need to survive so they have to find ways to offer products that can compete with foreclosed new homes.

Nevertheless, Meritage said it is shrinking its houses but not reducing the number of its bedrooms. Its new model combines living rooms and dining rooms, minimizes hallways and uses other techniques to reduce square footage.

In Yuma, where there are large numbers of foreclosed new homes, builders observed that only cheaper houses were being bought. The Development Group initially planned to build houses measuring 2,500 square feet, but after the sales of new homes declined, it now plans to build houses sized only up to 1,700 square feet at its Terraces development.

The builder also reduced its prices from the $287,000 to $350,000 range to a low of $200,000. It has also launched the development of smaller neighborhoods, with houses measuring only 1,100 square feet.

Sales director Bobbie Cooper said lifestyles are changing because of the recession.

People are also becoming increasingly conscious about energy consumption and maintenance costs. Empty nesters are also looking to downsize because they want to focus on enjoying their lives rather than maintaining properties.

In Columbia, South Carolina, housing developer Great Southern Homes has launched a house model called Bungalow, a three-bedroom 884-square-foot home that sells for only $89,000.

Maureen Swindall, vice president of Great Southern, said prospective home buyers are glad they can afford to buy a single-family house. During these difficult times, prospective home buyers are looking for lower-priced houses, either newly-built homes or foreclosed new homes.

Realtors taking advantage of the current drop in housing prices are conducting tours of houses featured in tax foreclosure property listings. Foreclosure tours are popular in states with high number of repossessed homes, such as California and Florida.

Potential homebuyers ride buses to tour the areas where houses featured in tax foreclosure property listings are located.

The concept is becoming so popular that Jarrett Bouchette, a real estate agent, had to turn away some potential buyers from foreclosure tours that he organized.

Foreclosed homes used to have a shady reputation and were not considered as a good investment. Either they were vandalized, damaged beyond repair or not good to look at. However, changes have been noticed in the types of homes included on current tax foreclosure property listings. Some of these foreclosed properties are nice to look at and some have never been lived in.

Real estate agents have to come up with innovative ways to attract buyers for distressed properties. With the growing tax foreclosure property listings, it is no wonder that competition in the foreclosure market is becoming intense by the day.

As of January 2009, foreclosures reached 72,694 with 14,351 reported in California, 10,007 in Florida, 5,367 in Texas and 5,250 in Arizona. Pre-foreclosure filings reached 166,860 with 33,008 in California and 43,070 in Florida.

A respite from this trend is seen when President Barack Obama announced his $275 billion foreclosure prevention plan designed to help nearly 5 million distressed homeowners.

The plan includes helping homeowners who remain current on their mortgages to refinance their loans to avail of affordable payment terms. It also encourages mortgage lenders to modify loans to allow distressed homeowners to save their properties from foreclosures.

While the verdict is still out there whether Obama’s foreclosure prevention plan will succeed or not, Bouchette will continue to organize tours of homes included in tax foreclosure property listings with sticker prices between 500,000 to over 1 million. These market prices are down 15 percent to 20 percent from their original value two years ago.

Because of the unabated increase in the number of foreclosure homes in the state, both Republican and Democratic members of the state House and Senate have approved bills that would require mortgage loaners to meet with distressed borrowers for a possible renegotiation of loan terms.

State lawmakers are hoping that the House Bill 1633 and Senate Bill 492 would help homeowners protect their properties from foreclosure and may eventually lead to the stabilization of the housing market.

Lawmakers said that the goal of the two bills is to oblige mortgage loaners to meet with distressed homeowners so that they can come up with loan terms that will allow lenders to recover their investments and borrowers to avoid becoming owners of foreclosure homes.

Also, the bills would compel mortgage firms to assign a local representative with the power to formulate a solution that may help reduce the number of foreclosure homes in the market.

Senator Karen Tallian said that most often, distressed homeowners have difficulty finding someone who has the authority to resolve a mortgage and foreclosure-related problem. She added that owners of distressed properties who want to keep their homes have a hard time meeting with lenders who operate outside Indiana.

However, both the Senate and House bills do not force mortgage lenders to offer a new payment scheme to distressed homeowners. Representative Woody Burton explained that the agenda of both bills is to pave the way for lenders and homeowners to meet to give borrowers a chance to renegotiate with lenders and save their properties from foreclosure.

Meanwhile, not all lawmakers support the Senate and House bills. Senator Brent Steele pointed out that the bill only delays the inevitable foreclosures.

On his part, House Minority Leader Brian Bosma is concerned that the bill forcing lenders and homeowners to meet and issuing additional notifications of foreclosures to borrowers may be taxing for lenders.

He noted that there is enough new regulations for mortgage lenders who have loaned money to homeowners in good faith and adding another one could be too much on them.

While in Mesa, Arizona for his road trip across western states, Obama unveiled a 75 billion program to help alleviate the foreclosure crisis and revive the housing market.

Speculations that Obama’s foreclosure abatement plan will help in the recovery of the American economy brought a change in the three-day upward movement of the yen. The Japanese currency dropped against the euro, Australian and American dollar.

The American dollar gained 1.4 percent over yen’s 93.75 rate and 0.3 percent against euro’s $1.2545.

Furthermore, the Dollar Index , which monitors the movement of the American currency against yen, pound, euro, krona, Canadian dollar and Swiss franc, has reached 88.254, its highest since November 21, 2008 when it peaked at 88.463. For 2008, the Dollar Index gained almost 8 percent.

The strong performance of the American dollar against other currencies is attributed to Obama’s foreclosure prevention program which is expected to help nearly 5 million borrowers on the brink of losing their properties to foreclosures.

The program hopes to refinance loans undertaken by Federal Home Loan Mortgage Corp. and Federal National Mortgage Association.
Stephen Gallo, Schneider Foreign Exchange’s market analysis head, said that the plan to stall foreclosure will attract Japanese investors to purchase securities issued by both government-sponsored enterprises.

On its part, the Department of Treasury will purchase about $200 billion preferred stocks from housing companies to help trim the number of foreclosed homes by stabilizing the housing market.

Meanwhile, California Public Employees’ Retirement System money manager Eric Busay noted that the U.S. exerted more effort to address the growing foreclosure problem than other countries. This plays well with the dollar which gained strength over other currencies.

Standard Chartered PLC predicted that the American dollar will increase by 7 percent over the Japanese currency in the coming quarter should it soar above 94.63 yen as a result of the Obama Administration’s efforts to bring down the number of repossessed homes.

On the other hand, Federal Reserve officials have lowered their economic forecast for 2009, with majority of them expecting that the economy will shrank by as much as 1.3 percent. The economy posted a decline of 3.8 percent in the last quarter of 2008.

Here are guidelines to help you make an informed decision concerning choosing foreclosed homes to invest in.

• A common misconception about foreclosed properties is that it is dilapidated, about to disintegrate, covered with molds and infested with termites. The truth is, repossessed properties can be a mansion or commercial properties worth several millions of dollars. Foreclosure means the home owner defaulted on his monthly payment which forced lenders to take back the property and sell it to recover their investment.
• It is a must that before you embark yourself on the business of investing in abandoned and vacant houses, you must determine first your target market. Whatever type of property investment you want, you will have more properties to choose from.
• Try to do some research about the three stages of foreclosure:
  • Pre-foreclosure

    In this stage, the owner of the property has received a copy of a certified letter informing him that his home will be repossessed if he failed to pay immediately the amount due. You can make an offer for the home to the distressed owner at this stage.

  • Auction Stage

    In this stage, the home has been included for auction or trustee sales. This also means that the homeowner has failed to settle his account despite repeated requests from the lender. You can buy the property directly from the lender, often at a discounted price. However, you are required to shell out cash and buy the home as-is.

  • Real estate owned

    The lender is forced to buy back the property if it has not been sold during an auction. You can buy the property from the lender.

Real estate, especially in the area of foreclosed properties, is a profitable investment. However, just like any other investments, you need to expend effort and time to study and know the business before venturing into it.

Vacant houses and condominiums bought last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties amounted to 19,926. The San Diego-based research company also adds that sales have increased compared to only 13,249 from last year. The region’s mean home price became $278,000 as it dropped 35 percent.

After President-Elect Barack Obama designed plans to revitalize the housing market through the utilization of the remaining half of the $700 billion Troubled-Asset Relief Program, foreclosures now enticed buyers, which originally were sold in unreasonable discounts. The first allocation of money for bailout provided assistance to lenders such as Bank of America Corp., and financial companies like Goldman Sachs Group Inc. since their assets concerning mortgages plummeted in value.

California foreclosed homes amounted to 56 percent of Southern California’s sales last December, which was twice the amount of the previous year. These deals have comprised roughly 70 percent of sales in Riverside County, where the mean price tumbled 41 percent to $209,000. Sales leaped 77 percent to 4,435.

As a smaller percentage of properties near the cost converted hands and more inland areas where mortgages defaults have risen were sold like in Riverside and San Bernardino, the mean price for the whole of Southern California took a nose-dive.

In addition, according to John Karevoll, an MDA DataQuick analyst, there is plenty of activity in distressed markets, while very little activity in less distressed markets. In the six Southern California counties, each one had a boost in foreclosed home sales. Taking the lead is San Bernardino with an 89 percent increase, which also had the largest cut in price with 43 percent to a mean of $180,000.

On the other hand, the Los Angeles County displayed the least in sales growth, with only 32 percent of deals increasing from the previous year. The mean price decreased 32 percent to $320,000. Prices dropped the least in San Diego County, as the mean waned 30 percent to $300,000.

MDA DataQuick also adds that Southern California buyers of foreclosed homes last December were primarily loaned by the Bank of America and Wells Fargo & Co.

The said website babes its analysis on formal notices that were filed against a property within a foreclosure process, including notices of default, foreclosure auction, and REOs, which is after a foreclosed property remains unsold at an auction.

In the report, Florida topped in the number of foreclosure filings in 2008, having 549,414. On the second spot was California with 453,421, and Arizona on the third spot with 120,066.

Also, Florida ranked second for REOs with 107,833. While California topped with 260,709 REO filings, and Texas on the third spot with 70,037.

Among all the states, about a million homes got foreclosed in 2008, about 63.5 percent from 2007; plus an addition of 2.1 million pre-foreclosure filings in last year’s records was up by 62 percent from 2007.

On the other hand, another website RealtyTrac.com has reported that it was California tat topped the nation when it comes to the number of foreclosure filings. Its figures showed 523,624 foreclosure filings for California. However, the highest rates went to Nevada having one foreclosure in 14 housing units. Next was Florida and Arizona, both with one in 22.

RealtyTrac uses the same measures Foreclosure.com uses: default notices, REOs, and auction sale notices.

Of the 100 largest metro areas in the United states, it was Stockton, California that had the highest foreclosure rate—one in 11.

The date of RealtyTrac showed an 81% increase in foreclosures in 2008 from that of 2007, almost something like that of Foreclosure.com.

Given the report of both sources, a weak housing economy can be foreseen for year 2009. Higher number of foreclosed properties can still be expected so effective government action is very much needed.

The sharp increase in demand can be attributed to the record-low mortgage rates. In December 2008, for example, fixed 30-year loan rate averaged 5.03 to 5.04 percent – the lowest since July, 2003. The drop in mortgage rates has pushed the demand particularly for loan refinancing for properties troubled by foreclosure.

To further put pressure on lowering mortgage rates, the Federal Reserve declared that it will start buying mortgage-backed securities starting January. Back in November 2008, it has already announced such plan. The Fed plans to buy $500 billion worth of securities.

Aside from mortgage rates, actual home prices have also been dropping, making home buying even more affordable. Home prices since 2008 have been approximately 23 percent lower than the prices in 2006. This resulted from increasing foreclosure rate, among others.

However, consumers have not yet gained back confidence when it comes to buying properties. Still having the recession in mind, consumers are reluctant to purchase homes in fear that they might end up in foreclosure.

Another reason why consumers are hesitant in investing in new properties is that home value falls in the long run, thus, they might not be able to acquire refinancing when the value of their property has already fallen lower than the worth of their mortgage.

Also, although rates have dropped, mortgage criteria have become firm on the other hand, making it difficult to have an application approved. Although the government can take measures to lower home costs, it cannot be of help when it comes to the credit record of borrowers. A homebuyer whose credit history is not very pleasing, those who have gone through foreclosure for example, still might not be able to buy a home.