Fortune Picks Hot REI Markets as Foreclosures Top One Million
As the number of U.S. home foreclosures topped one million this month, cities in the states hardest hit by foreclosure: Arizona, California, Florida and Nevada were named by Fortune magazine as the hottest markets for real estate investment. In addition, emerging reports of real estate market overhang are not surprising. Especially in light of the mid-decade building frenzy in Arizona, California, Florida and Nevada that was spurred by gravity-defiant home prices and easy money loans.
During the Boom
Back then CNNMoney says, dramatic price surges were fueled by investors who used risky mortgages to cash in on hot market activity, Today, these four states combined hold one-third of the nation’s foreclosures, with nearly 400,000 homes hanging in the balance.
According to the Mortgage Bankers Association Q1 report, Arizona, California, Florida, and Nevada combined represent:
- 62 percent of all foreclosures started on prime ARM loans, and 84 percent of the increase in prime ARM foreclosures;
- 49 percent of all of the subprime ARM foreclosures started in the country during the Q1, and were responsible for 93 percent of the increase in subprime ARM foreclosures
- 29 percent of prime fixed-rate foreclosures and 60 percent of the increase in those foreclosures; and
- 25 percent of subprime fixed-rate foreclosures and 53 percent of the increase in those foreclosures.
Fortune’s Five Hottest REI Markets
Especially now that the chips appear to be down, it seems that everyone wants in on the real estate game, and Fortune magazine has named five cities as ideal for real estate investing. These markets are generally the hardest hit in the foreclosure epidemic:
- Miami
According to the S&P/Case Shiller index, prices and sales here appear to be circling the drain. Miami house prices have dropped a whopping 21.7 percent in the past year, and dwindling median condo prices. Miami condo and home sales have plunged 40 over last year, and market activity has slowed dramatically. Fortune recommends that the following markets are ripe for real estate investment: Aventura, Bal Harbour, Sunny Isles Beach and Coral Gables - Tampa
The Case-Shiller index reports that in the past year, real estate values have fallen 17.5 percent. Still, Fortune predicts a rebound is in the forecast for Tampa because of its strong local economy and other market forces. Currently, the median home price is $222,000, down from $275,000 last year, and the National Association of Realtors (NAR) predicts 20 percent or greater appreciation value over the next five years. Today, home prices are 50 percent lower than they were during the boom. Those surges may be attributed primarily to speculators flipping houses for quick profits, Fortune says. When the deals began to recede and the investors started started pulling out in 2006, the prices began their free fall. Now, Fortune says, this market is ripe for high-end real estate investment: Gulf-front luxury condos in Clearwater or St. Petersburg, are down from the $1 million a few years ago, to around $600,000 today. - Las Vegas
Here, the real estate bubble swelled with annual price increases of up to 50 percent, making for today’s dramatic price drops and hot bargains. According to the Case-Shiller index, Las Vegas is the hardest-hit locale nationally, with prices dropping nearly 23 percent in one year, and one in 44 homes hitting foreclosure Q1 alone. In this market, with the third-highest rate of foreclosure in the U.S., Fortune predicts that the sun-drenched climate, proximity to pleasure, and glut of luxury homes, combined with the absence of state income tax will attract droves of retirees — and a speedy market recovery. Here, Fortune recommends investing in new construction in outlying areas like Summerlin and Providence, or in high-rise condos, especially in light of their 10 percent price drops since last year. - San Diego
Prices here have plunged nearly 10 percent and foreclosures have surged in the past year, according to Moody’s Economy.com. Despite the fact that the Council for Community and Economic Research deems San Diego County’s cost of living 47 percent higher than the national average, the area’s natural beauty and beach-front locations give it the strength to conquer adversity and recover quickly from the mortgage crisis. Again, Fortune’s forecast is growth in the high-end property appreciation, as these properties have been the slowest to move in the inventory glut. - Phoenix
Although Moody’s Economy.com shows its real estate values plummeting by 8 percent over the past year, and RealtyTrac reports its foreclosure rate has tripled since 2007, Phoenix, like Las Vegas will continue to attract retirees. Here, Fortune says, the planned communities that surround the metropolitan area offer hidden bargains. Also, amenities such as golf, shopping and luxurious recreation centers add additional value for the retirement crowd. Fortune suggests that here, areas like Sun City Anthem, Palm Valley, and Avondale are great places to find housing bargains that’ll likely offer healthy returns as the markets continue their recovery.
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June 16th, 2008 at 4:04 pm
Looks like it could be a good time to invest in those markets - though I know people who have lost $$ big time in Phoenix!
June 16th, 2008 at 5:35 pm
A great strategy to buy and hold properties in many of these markets that are thriving with retirees, is by renting them out to snow-birds. Not only do retirees often make great tenants, many of them seek places to catch some golf and perhaps look for a second home or residence during the Winter months. In many retirement communities there are age restrictions, meaning that folks have to be of a certain age to live there.
Short-term rentals are a great way for folks to try the retirement lifestyle before they buy. In places developments like the Sun Cities near Phoenix for example, where second homes are all the rage, HOA fees cover landscape maintenance that maintain your curb appeal with no effort and visitors can access all the recreational amenities the communities have to offer. Also, neighbors keep an eye on properties and have strong neighborhood watch networks. An additional bonus, in some cases, are incentive-level property taxes that are a throwback to when places like Sun City West for example, were so remote, and development was so needed to boost the local economy, that developer Del Webb was able to negotiate great tax deals for buyers that remain in effect today. This is definitely something to investigate before you buy.