Foreclosure turnovers

Hi, I have been looking into purchasing some foreclose properites. While doing my research I notice that some of these homes have been bought and sold recently and are now in foreclosure. When I say recent, I mean one homes are being bought and are going into foreclosure within a year or 5months. I was wondering if an abundance of foreclosures is a sign as to the strength or weakness of a particular market? What about if an area has properties that seem to have been bought and sold and gone into foreclosure several times within a year or two. I hope My question was clear. Thanks for your time.

I’ve experienced that situation here in my market and I found that its is usually because the homeowner paid too much or because of change in income shortly after purchase, and it happens with $400K and $50K homes.

I’ve had clients in both ranges and I don’t think the market has anything to do with it .

Good Luck,

Hello all,
I believe it’s a sign of the times; people purchasing more home than they can afford with the creative non-conventional financing. Chalk that up to irresponsibility.
You’ll see these ARM’s adjusting with the rising interest rates. Chalk that up to ignorance.
You’ll see foreclosures rising drastically across all markets, income level with a huge hickey to the working middle class. Chalk that up to the best legislation the lending lobby could possibly buy in the bankruptcy reform laws.
Just my 2 cents.

Your question is a good one and since I wasn’t around during the last market cycle peak, imho CA is at it’s peak, I can relay what I’ve been told and taught by investors who were around at that time in my area and buying foreclosures (e.g. Bruce Norris, Ward Hanigan, etc.).

Foreclosures represent competition to the MLS since it is inventory that usually can be bought at a discount of FMV. Supply and demand forces at work the more foreclosures the more downward pressure there is on prices and therefore weakens the market.

As the market cycles downward, the time between purchase or refinance to delinquency / foreclosure will shrink which is what I’m seeing in dramatic fashion here in san diego. Last month 60% of NODs, which begins the foreclosure process, were purchased in the last 3 years and an even higher percentage have refinanced to a very high level.

So what could that tell us about the psychology of the average homeowner that will end up in foreclosure? Well, one theory would be that they bought in an up market and thinking that the market would continue up and since they believe their equity is a check waiting to be cashed, they refi using a 3/ or 5/1 ARM. Then prices stall and they can’t refinance anymore so to them their “checking account” has been fully drained. Like a used milk carton they walk away from it and drive to San Antonio in their new Hummer, they bought with the equity, and start over.

There’s a dozen reasons why someone goes into foreclosure but the key to the change in the market is the time between purchase / refi to foreclosure. The smaller it gets, the weaker the market, the more foreclosures that are likely. Bruce calls it the domino effect. One starts another and once they start falling, it’s almost impossible to stop.

Kawika…that was a very insightful post. Most new investors have no sense of the history of real estate markets. Bill Joy, co founder of Sun Microsystems, once refered to the internet bubble as a time of “upside panic”, a time when lots of people were afraid of missing out. I’m afraid that is what has been happening in the RE market. Lots of people have made a ton of money and new investors want in on it to. Look at all the new investors and the proliferation of new RE gurus marketing to these new investors. And all the while not seeing the cracks appearing in the RE market. I fear that many of these new investors will be tomorrows motivated sellers or even worse, have to walk away from their “investments”. I hope I’m wrong, time will tell.


That’s a good quote and analogy. Since we watch the foreclosure market, we’ll likely see a lot of those same investors over the years become statistics.