A bank-owned home.
Foreclosed homes used to have a swarm of nasty stigmas attached to them—poorly maintained and many in bad neighborhoods, these houses were "damaged goods" and house hunters wouldn't often seek out these properties.
"Foreclosure had a very bad connotation in the old days, say three or four years ago just before the crisis," says Steve Berkowitz, CEO of Realtor.com. "It was a run-down property, usually in a run-down neighborhood."
But in the wake of the nation's worst housing crisis in recent memory, that perception is changing. Buyer interest in foreclosures has tripled over the past two and a half years, according to a new survey from Realtor.com, underscoring the changing dynamics in the recovering U.S. housing market.
[See a slideshow of the Top 10 Places to Buy Foreclosures.]
Almost two-thirds of house hunters say they're likely to end up buying a foreclosure, according to the survey, leaps and bounds above the 25 percent who said they'd be interested in a distressed property a couple of years ago.
A lot of it has to do with how commonplace foreclosures have become. No longer confined to seedy neighborhoods or lower-income homeowners, neighborhoods of all types and locations are now peppered with bank-owned properties.
"Especially when it comes to buying a foreclosure, the stigma has lessened because they're so common," says Daren Blomquist, director of marketing communications at foreclosure information website RealtyTrac.
"In San Francisco, almost 50 percent of the properties that are selling are in some stage of foreclosure or bank owned. Nationwide, it's one in every four properties selling is foreclosure-related," he says.
And it isn't just investors who are scooping up bank-owned bargains. The number of buyers looking for rock-bottom real estate deals to make a profit off rental income is tapering off, experts say. Now, more than 92 percent of those surveyed said they plan on living in the homes they eventually purchase.
The price is another big draw. On average, foreclosures offer discounts of 30 percent or more, giving would-be buyers more bang for their buck.
"They see it as a value," Berkowitz says. "People are feeling in general that housing prices are becoming more reasonable—they're back to 2003 levels—and then you add the discount a foreclosure has, take away the stigma, realize that the location is probably desirable, and you end up with a real perception of value."
That sense of value isn't lost on today's average consumer, Berkowitz adds, which is why the market has seen competition heat up among house hunters and investors. Reports of multiple offers and bidding wars have become more commonplace as the supply of homes for sale has fallen over the past several months, creating a tighter supply-demand dynamic.
"Inventories are down, days on market [are] down, list prices are up," Berkowitz says. "What you're seeing is this point where people are feeling like maybe we're getting close to the bottom. You've got a tightening of supply."
Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter.
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