U.S. home buyers are less willing to buy foreclosed properties than six months ago, citing risks like hidden costs, but demand could grow because of the government's expanded tax credit, a new survey showed on Tuesday.

A continued drop in demand for the glut of foreclosed properties would add a fresh layer of pain to a housing market just emerging from a three-year nosedive.

The percentage of Americans at least somewhat likely to consider buying a foreclosed home fell to 43 percent in November, down sharply from 55 percent in May, according to a survey by Harris Interactive. The survey was conducted November 5-9.

The poll was conducted on behalf of Trulia.com, a real estate search engine, and RealtyTrac, which tracks foreclosures.

Demand for foreclosed properties, which are often deeply discounted compared to other homes on the market, is of particular concern, with RealtyTrac expecting over 3 million properties getting at least one foreclosure notice this year, up from a record 2.3 million last year.

About half of those properties will ultimately go back to banks, RealtyTrac said last week.

The company reported that November was the fourth straight month of declines in foreclosure actions, thanks to various loan modification efforts, but said many of those problem mortgages would fail anyway.

Until unemployment levels off and starts to get better, we expect foreclosures to continue to play a big role in the 2010 housing market, said Trulia Chief Executive Pete Flint in a statement.

Real estate investors, renters and homeowners looking to trade up to a larger house still show strong interest in foreclosed properties, the survey found. Though overall demand dropped, a large share of current homeowners looking to trade up are willing to consider such a purchase.

About 24 percent of homeowners are at least somewhat likely to trade up to a larger home. Of these, 88 percent are at least somewhat likely to consider a foreclosure, according to the survey.

Demand from those buyers could rise on the back of the government's new $6,500 tax credit for current homeowners who buy a new home. These are the trade-up or move-up buyers.

Buyers looking to lock in that incentive, as well as buyers wanting to take advantage of the $8,000 first-time homebuyer credit, need to sign contracts by the end of April and close on mortgage loans by the end of June.

Foreclosures are providing never-before-seen opportunities for new segments of homebuyers and allowing renters to become first-time buyers, allowing investors to grab great deals and allowing families to trade up to larger homes. Flint said.

Nearly one in four house shoppers, 23 percent, are at least somewhat likely to buy a second home or investment property, the survey showed. Of those, 92 percent are at least somewhat likely to buy a foreclosure.

Fifty-seven percent of renters are at least somewhat likely to buy a distressed home. Demand from renters, as well as all adults, fades as ages rise.

Marital status also impacts demand, with more never-married adults more willing to consider a foreclosed property than those that are married, divorced or widowed.

Two-thirds of buyers expect to get a discount of at least 30 percent for a foreclosure.

The survey found that 95 percent of foreclosure buyers are willing to invest in renovations, with more than half expecting to spend 20 percent or more of the purchase price to improve the property. Such spending can help stimulate the economy.

(Editing by Leslie Adler)