Boomer’s Blog

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:

1. 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
2. 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.
3. 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.
4. 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.
5. 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.

For investors who want to track trends in real estate numbers as they emerge, the RealtyTrac Monthly U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported monthly; it is then broken out by filing type at the state and national levels. Below are some fast facts on state foreclosure numbers:

Five Highest State Foreclosure Rates
These figures chart the ups and downs of foreclosure rates reported in states across the nation.

1. Nevada: One in every 139 Nevada households received a foreclosure filing during March, 3.9 times the national average and the highest state foreclosure rate for five consecutive quarters. Foreclosure filings were reported on a total of 7,659 properties during March, up 24 percent from February and up nearly 62 percent from March 2007.
2. California: Foreclosure rates in California came in second place among the states for the fourth month in a row. One in every 204 California households received a foreclosure filing in March — at a rate nearly three times the national average.
3. Florida: This state takes third place in the foreclosure rate rankings. There, one in every 282 Florida households received a foreclosure filing in March, establishing a foreclosure rate that’s nearly 2 times the national average.
4. Arizona: Despite a nearly 5 percent monthly drop in foreclosure activity, Arizona posted the fourth highest state foreclosure rate for the third consecutive month, with one in every 283 households receiving a foreclosure filing in March. Overall foreclosure filings were reported on 9,199 properties during March, up nearly 106 percent from the same month in 2007.
5. Colorado: Colorado foreclosure activity declined 8 percent from February, and 1 percent from March 2007. Still, the state’s foreclosure rate continues to rank fifth-highest among the states. Foreclosure filings were reported on 6,180 Colorado properties in March — that’s one foreclosure for every 339 households.

Other states with foreclosure rates making the cut for the top 10 foreclosure rates include Georgia, Ohio, Michigan, Massachusetts and Maryland.

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I’ll be heading south on Saturday to check out the Los Angeles Real Estate Investors Club’s (LAREIC) Investor Essentials Seminar. I’ll be teaching entrepreneurs how to Make Tons of Cash in Creative Real Estate and explaining how their success hinges on effective marketing. There is a lot more to this than just a catchy lesson title. Clearly, greenbacks don’t raise the dead or cure cancer, but tons of cash — especially in creative real estate — is the lubricant for success.

It has been statistically proven that seven out of 10 millionaires in the United States have made their fortunes in real estate. In the meantime, the other three have kept their millions by investing in real estate. This is all true even in California, where RealtyTrac reports bank repossessions are up 557 percent over this time last year. While these figures represent devastation for many, real estate investors are beginning to see new opportunities emerge on the market’s horizon.

There is no disputing the credit crunch and the market downturns in the Golden State have taken their toll. As a California real estate investor, I know what the conditions are, just as I understand their cyclical nature. I’ve bought and sold hundreds of properties, and have seen Bay Area markets rise and fall like the tides.

But despite the market’s persistent downturn, if you’re buying right and getting the good deals, you’ve got great potential to succeed. In my business, SalesTeamLive, I see this happening every day. We have more than 800 people using our Done-For-You marketing service and we’ve sent out more than 8 million mailers for folks across the country. In the past six months alone, we’ve generated over 40,000 inbound calls. This business gives me a bird’s eye view of what’s happening in markets throughout the nation.

I see viable real estate investment opportunities in many markets, but especially in California. People are picking up properties for 50 to 60 cents on the dollar. And if they’re buying right, there are plenty of motivated and qualified buyers out there who will take them off their hands.

However, I’ve also noticed that, especially with the gloomy headlines, the credit crunch and the market’s woes, a lot of us tend to be fearful, become overwhelmed and procrastinate. This Saturday in L.A., I’m going to teach entrepreneurs how they can overcome the negativity and show them exactly what their time is really worth. Using the right tools, real estate investors can still write their own tickets to the destinations of their choice.

In California specifically we’re coming into one of the best buying opportunities of all time. If you’re using the right model and you already know what works, you don’t have to invent it. It’s easy to make money right now in this market if you have the success formula.

If you can’t be in L.A on Saturday, please remember that you don’t have to innovate to make it in this business:

• If you want success, it comes down to marketing;
• If you want survival, it comes down to automation and delegation;
• If you want wealth, it is waiting for your call.

If you would like to hear an audio preview of my presentation, recorded during a phone conversation with LAREIC President Phyllis Rockower, it is freely available on her Investor Essentials registration site.

As home sales and prices drop across much of the United States, many sellers are resorting to fire-sale pricing and bargain hunters are seizing the hot real estate investment opportunities.

The national median home price dropped to $195,900 in February, down from $213,500 for the same period in 2007, acording to RealtyTrac. In the meantime, cities in three of the five states with the nation’s highest total foreclosure rates top CNNMoney.com’s rankings of the best places to invest in housing.

Georgia’s Atlanta Area

• Georgia’s total of 11,047 foreclosures fuels the nation’s fourth-highest overall foreclosure rate, says RealtyTrac. One in every 351 Georgia households received a foreclosure filing in March — ranking its foreclosure rate No. 6 in the nation.
• According to CNNMoney.com, rampant home building in the Atlanta area has stalled, which should start to reduce the area’s large supply of vacant housing and propel prices upward.

Ohio’s Cincinnati and Cleveland Areas

• RealtyTrac’s most recent report says that Ohio’s total of 11,273 foreclosures give the state the third highest foreclosure rate in the U.S.
• One in every 448 Ohio households received a foreclosure filing in March — earning a seventh place spot in total foreclosures rankings by state.

CNNMoney.com ranks these cities as the third and fourth best places to buy houses in today’s market, forecasting that:

• Cincinnatti’s manufacturing-heavy economy should rise as the dollar falls: Commercial construction and high-end developments are on the rise.
• Cleveland’s foreclosure boom seems to be slowing, thanks to programs to help troubled borrowers. Prices have stabilized and appear poised to rise.

Michigan’s Detroit Area

• In February, RealtyTrac reported that Detroit had nearly 5 percent of the city’s households were entering some stage of foreclosure, at a rate 4.8 times the national average.
• With an average price-to-rent (P/R) ratio of 15, a buyer theoretically annually gains almost 7 percent of the purchase, CNNMoney.com reports. The average P/R ratio for Detroit’s 30 biggest markets: 23.

Texas’ Houston Area

• Texas’ foreclosure filings were reported on 10,700 properties in March, marking a 13 percent decrease from the previous month and a 16 percent drop from foreclosures reported for the same period in 2007, RealtyTrac reports. In February, a decline in the state’s foreclosures dropped Texas to the fifth place spot for total foreclosures among the states.
• In Houston, soaring oil prices will support and help to stabilize real estate prices. In Q4 2007, prices here were up 1.4 percent — the fastest of all the metro areas CNNMoney.com analyzed.

So far in 2008, default notices have risen nearly 60 percent, bank repossessions have surged 129 percent, and auction notices rose 32 percent over the same period in 2008, according to RealtyTrac.

Lenders Cut Deals to Avoid Public Auctions
These data suggest that an increasing number of defaulting homeowners are throwing in the towel and deeding their properties back to the foreclosing lenders. A potential advantage to this strategy is that the deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without offering it at a public foreclosure auction.

Bank Repossessions Shatter Charts
The year-over-year increase in bank repossessions reported by RealtyTrac are even more staggering on a state-by-state basis:

• Arizona: 619 percent,
• New York: 597 percent,
• California: 557 percent, and
• Florida: 464 percent.

Far From Over
In its March report, RealtyTrac predicts that the current trend towards property foreclosures , repossessions and public auctions is far from reaching its peak. Though at this point, predicting a turnaround could be riskier than betting the house on a sub-prime mortgage.

Forbes.com has surveyed the 40 largest U.S. metropolitan areas and aggregated various data on foreclosure listings, job growth, transaction volumes, vacancy and current inventory rates to build a list of the 10 most ominous real estate markets in the nation.

1. Detroit, Mich.: Here, foreclosures are five times the national average, jobs are few and people are moving away in droves; the economy continues to suffer.
2. Orlando, Fla.: This market has a 7 percent vacancy rate, despite job growth in the past few years. Analysts predict negative growth for this market in 2008.
3. Cleveland, Ohio: Here, a 3 percent foreclosure rate ranks the sixth worst in the U.S. Also, there has been no significant job growth recorded since mid-2006. when the rate rose only 0.1 percent.
4. St. Louis, Mo.: Market values here dropped 20 percent from 2006 to 2007. This year, the foreclosure rate has surpassed 1 percent and job growth continues to stall. Analysts say that the sharp declines, and rock-bottom prices are likely to reduce recovery time — if the local economy holds up.
5. Miami, Fla.: Foreclosures here are the eighth highest in the U.S. and construction-fueled job growth has suffered hard hits in the past two years.
6. Las Vegas, Nev.: Despite stellar construction-based job growth in 2004 — 2005, growth in the past two years has been flat. Dangers here include rising foreclosure rates, high inventory, and threats that the overall economy will worsen.
7. Sacramento, Calif.: Ranked the fifth worst foreclosure market in the U.S. Beyond the 3 percent foreclosure rate, this market also suffers from jobs losses as as the construction-powered economy tapers off. But transaction volumes are up, even if prices are down. Way down. Here, desperate homeowners have set records with their agressive price reductions.
8. Denver, Colo.: Despite strong economic growth over the past four years, and a $240,000 median home price, Denver has experienced 50,000 foreclosures, or nearly 3 percent of the market, thusly earning the ninth-worst foreclosure rate in the nation. This market’s saving grace is reported job growth at three times the national average.
9. Tampa, Fla.: Although this market continues to add residents and remains a popular destination for retirees, inventory remains high and dismal growth in the service-oriented job market doesn’t seem to be helping.
10. Phoenix, Ariz.: With an economy supported by the construction industry and overbuilding, there are 53,000 homes reportedly on the market. This sky-high inventory is five times the 2005 rate, and homes aren’t selling anywhere close to asking prices. Besides holding one of the highest foreclosure rates in the nation, the distressed Alt-A and sub prime loans aren’t contained within one single area as is typical among large metropolitan locales.

Note: These data were culled from the following sources to create the list, which bears more bad news for cities already suffering from high foreclosure rates, job growth stagnation and dwindling tax revenues: Foreclosure listing service; RealtyTrac; job growth: U.S. Bureau of Labor Statistics; transaction volume data: Radar Logic; current inventory rates: U.S. Census Bureau; and multiple listing service (MLS) data: ZipRealty.