03-24-15 - investing opportunitiesThe number of mortgage foreclosures can provide insights into the general economy and real estate markets. While this is obviously bad news for some homeowners, this is also good news for real estate investors because those of us who look for below market opportunities need a large pool of potential properties.

But, like unemployment, there appears to be a certain lower limit to foreclosures. In other words, even during good economic times, there is number of mortgage foreclosures that will always remain. What this means is really important to investors: it does not matter whether times are good or bad when it comes to  looking for foreclosure investment opportunities.

Let’s take a look at some recent properties in foreclosure.

640,000 US Homes in Some Stage of Mortgage Foreclosure

That’s a big number representing a lot of families that could lose their homes. But this number is actually 34.4% lower than the same time in 2013, and could drop could considerably more. Anand Nallathambi is the President and CEO of CoreLogic. He predicts that, “…the overall foreclosure inventory could trend down to as low as 500,000 homes by year-end, which is very positive news for the housing market.”

So is this good news?

On an individual level, this is good news: fewer people are losing their homes because fewer people are in financial trouble.

But the data also tell us another story about regional differences and regional economies. Five states are responsible for almost half of all foreclosures: Florida, Georgia, California, Missouri, and Texas. In fact, RealtyTrac says that “one in every 469 Florida homes is in some stage of repossession”.

What these mortgage foreclosure findings show us is that, while there are economic improvements across the country, not all regions are sharing in them.

13,280 Canadian Homes in 3 Months Mortgage Arrears

Average number of single family homes with at least 3 months of mortgage arrears. source: Canadian Bankers Association

Average number of single family homes with at least 3 months of mortgage arrears. source: Canadian Bankers Association

The mortgage foreclosure situation is quite different in Canada. Unlike what happened with the housing collapse in the US, Canada did not experience the same housing bubble. The number of properties in foreclosure is much more stable over time.

In June 2014, there were 13,280 Canadian homes in 3 months arrears. While this is not exactly comparing apples with apples with US data, the trend in Canada is much more steady. For example, according to the Canadian Bankers Association, the number of homes in foreclosure has only dropped by a paltry 1.9% since June 2013. This does not suggest a struggling economy; rather, it shows there is a certain lower limit to the number of mortgage foreclosures in Canada.

Since 2000, as shown in the graph, the average number of properties in foreclosure in Canada is 10,000 per month, with only slight variations during good or bad economic times.

What These Foreclosures Mean for Investors

For investors in US properties, there are still plenty of bargains to be found, especially in Florida. Many foreign investors are recognizing these deals and are snapping them up, but many remain. If you’re looking for a buy-rent-hold type of investment, focus on those states with the higher number of mortgage foreclosures.

In Canada, there are not nearly the same number of foreclosure opportunities. However, the fact that there are 13,000 or so mortgages in arrears does point towards alternative investments strategies like lease option refinancing that can provide investors with excellent returns. Just be sure to focus on low-risk properties… you don’t want to invest in a dump!

Your reward for patiently researching the market and looking for distressed sellers is a property portfolio bought at bargain prices.

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