5 Worst Places to Buy Foreclosures in 2013

BOSTON ( TheStreet) -- The U.S. foreclosure crisis looks like it's finally winding down -- great news for homeowners, but decidedly less positive for house hunters and real estate investors.

"From the perspective of buyers, some markets might not be as attractive any more," says Daren Blomquist of market watcher RealtyTrac, which found recently that U.S. foreclosure-related filings fell during 2012 for the second straight year.

RealtyTrac, which monitors county registries of deeds around the country, says lenders filed paperwork covering around 1.9 million foreclosures, deed seizures and property resales in 2012 -- a roughly 34% drop from 2010's 2.9 million peak.

The firm also analyzed all 102 U.S. metro areas with 500,000 residents or more and found that filings fell by double-digit percentages in many locales during 2012.

Blomquist says house hunters and investors looking to buy foreclosures on the cheap in those cities can expect to "compete against each other for places this year. The foreclosure supply is drying up, but there's still interest from other buyers."

The expert says markets with the worst prospects for buyers are generally in "non-judicial foreclosure" states, where laws allow lenders to seize properties quickly with little court involvement.

For instance, the average foreclosure finalized in nonjudicial Texas during 2012's fourth quarter took just 113 days from start to finish versus 1,089 days in judicial-foreclosure New York.

Blomquist says nonjudicial states' speedier processes have allowed banks to clean out backlogs of delinquent properties there, making fewer distressed homes available for would-be buyers.

"The worst cities for foreclosure buyers are typically those places that worked through their problems fairly quickly," he says, adding that people looking for deals should check out metro areas with more problems.

Here's a look at the five metro areas that RealtyTrac predicts will offer would-be foreclosure buyers the worst deals in 2013.

The firm based its rankings on a number of factors, such as how many months of unsold foreclosures each city had on the market as of Dec. 31.

All figures cover houses, townhouses, condos and apartment buildings with four units or less. Average percent discounts on foreclosures refer to properties sold during 2012's first 10 months, the latest period with data available.

Fifth-worst market: Salt Lake City

Speculators priced out of California and Arizona markets bid Salt Lake City's home prices way up during the housing bubble, but Utah's nonjudicial-foreclosure laws have helped the metro area recover relatively quickly from the bust that followed.

Salt Lake's foreclosure-related filings fell 37.7% in 2012, leaving the 1.1-million-person metro area with just 19 months of unsold foreclosures on the market (one month less than the U.S. average).

As a result, the typical Salt Lake City foreclosure buyer got only a 13.4% discount in 2012 -- way below the 31.6% national average.

"We've seen the numbers come down in Salt Lake City in the past year because of the state's more streamlined foreclosure process," Blomquist says.

Fourth-worst market: Las Vegas

Long the poster child for the U.S. housing boom and the bust that followed, Las Vegas is seeing a major turnaround in its housing market -- with prices rebounding and foreclosure filings way down.

"Las Vegas is a market that has been organically able to bottom out more quickly because of Nevada's fast foreclosure process," Blomquist says. "Many of the foreclosures that had to happen there have already happened."

He adds that a 2011 law change that made the state's nonjudicial-foreclosure process a little harder for banks took effect only after many Vegas home seizures. As a result, the measure has only dried up Sin City's backlog of unsold distressed homes further.

Foreclosure-related filings fell 57% in Las Vegas during 2012, leaving the metro area with only a seven-month supply of available foreclosures -- one of the lowest rates for any U.S. city.

All told, distressed-home buyers enjoyed just a 16.8% average discount in 2012 in the 2 million-person metro region.

Third-worst market: Little Rock, Ark.

Former President Bill Clinton's birthplace saw foreclosure-related filings plunge 48.6% in 2012 -- but Blomquist says that might be only a temporary reprieve.

He says Little Rock's foreclosure crisis abated mostly because of a November 2011 court ruling that slowed Arkansas home seizures.

"The drop in foreclosures is really the result of the court's intervention rather than a natural decrease in activity," Blomquist says. "It's reduced foreclosures in the state for now, but that might not be the end of the story. Lenders are still trying to figure out how to proceed."

For now, Little Rock's glut of unsold foreclosures has dropped to a 15-month supply. That's partly why the typical foreclosure buyer in the 710,000-person metro area got only a 24.3% discount in 2012 -- well below the national average.

Second-worst market: Ogden, Utah

Ogden has seen its foreclosure crisis ease in tandem with improving conditions in Salt Lake City, some 40 miles to the south.

Foreclosure-related filings dropped by 50.1% last year in Ogden, leaving the 547,000-population metro area with just a 13-month supply of seized properties up for resale. As a result, the average Ogden foreclosure buyer got only a 14.7% discount last year.

Blomquist attributes Ogden's bottoming out to Utah's speedy nonjudicial-foreclosure process.

He adds that the average Ogden home-seizure case finalized during 2012's fourth quarter took 449 days to complete, though -- up 96 days from three months earlier.

Blomquist isn't sure what's behind the increase, but calls it "a warning flag. It means there could be more foreclosures hitting the resale market down the pike."

No. 1 worst market: McAllen, Texas

This South Texas city along the U.S./Mexican border never saw big home-price gains during America's real estate boom, so it didn't suffer as much in the resulting bust.

Add in Texas' fastest-in-the-nation home-seizure process and you have foreclosure conditions that are good for current owners, but terrible for would-be buyers.

Foreclosure filings in McAllen fell 66% during 2012, leaving the 775,000-population area with only a 12-month supply of distressed homes available for purchase. That means the typical McAllen foreclosure sold for just a 21.5% discount in 2012 -- well below the U.S. average.

"There are definitely markets in Texas that still have foreclosure problems," Blomquist says, "but few are dealing with the huge numbers of distressed properties that we saw elsewhere in America."

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