More HUD Homes On Portland's Horizon

Posted on 09/30/08 7:15 AM

HUD’s new neighborhood booster program is expected to increase the number of HUD homes in Portland over the next couple of months.

This past Friday the U.S. Housing and Urban Development (HUD) announced that it will allocate a total of $3.92 billion to all states and particularly hard-hit areas trying to respond to the effects of high foreclosures. HUD’s new Neighborhood Stabilization Program (NSP) will:

“provide targeted emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The Neighborhood Stabilization Program (NSP) provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes”.

HUD Homes Offer Good Opportunities For Buyers

In most cases buying a HUD home works out to be a good deal. HUD homes are offered at fair market value, based on a recent appraisal. Much like any other bank-owned property, HUD has a different motivation than most individual sellers, where the appraised value rarely equals the list price. A number of HUD programs offer additional incentives, such as the Good Neighbor Next Door Program, which allows qualifying individuals to purchase a HUD home at a 50% discount on the list price.

Oregon’s HUD Inventory – Few and Far Between

HUD homes are located in designated Revitalization Areas. For Multnomah County, for instance, these areas include St. Johns, Lents, Parkrose and some sections along I-5/N Interstate.

In recent years, however, Oregon hasn’t had that much HUD inventory to speak of. Currently there are less than 25 HUD properties listed for sale in Oregon. None of them are located in the areas mentioned above. The reason is fairly simple; in the event that a homeowner defaults on his FHA-mortgage, the lender typically has two options – file a claim with FHA for the balance due on the mortgage and convey title to HUD or re-possess the property itself and put it up for sale. Given the appreciation we have seen in recent years, lenders are often able to generate more cash by selling a home than settling for the outstanding mortgage balance. As a result HUD rarely ends up being the new owner.

Local Outlook: More HUD Inventory But Still Not A Lot

The State of Oregon will receive $19.6 million for the Neighborhood Stabilization Program. The median price for a home in the Portland-metro area is currently about $280,000. It is probably fair to conclude that the median will be lower for HUD homes, given that these are foreclosed properties in sub-markets with lower median sale prices. So, let’s assume a median of $190,000. At that rate, the funds from the NSP would allow HUD to buy about 100 homes. Granted that’s four times as many as there are now, but still only 100 for the whole state of Oregon. California, by contrast, is scheduled to receive several hundred million in funds, LA County’s share alone roughly equals that of all of Oregon.

As home prices decline, expect to see more lenders trading-in their inventory in the near future, but don’t expect a bonanza anytime soon. Keep an eye on Oregon’s HUD inventory here. Feel free to shoot me a note if you have any questions.