Four States Lead Foreclosure Crisis

California, Arizona, Florida, and Nevada continue to lead the U.S. in foreclosures, but California is showing preliminary signs of a turnaround.

The cities with the greatest number of foreclosures include Las Vegas NV, Merced, Calif., the Cape Coral-Fort Myers area in Florida, and the California metro areas of Stockton, Riverside, Modesto, Bakersfield and Vallejo-Fairfield. Phoenix AZ, Port St. Lucie FL, Greeley CO, and Boise City ID also had extremely high foreclosure rates.

In the first three months of 2009, the number of Americans receiving foreclosure notices increased 24% over the same period of 2008. Analysts expect the next quarter to show an even greater increase.

Sales of existing homes fell 3% in March, which was more than expected, but in the Western states (like CA and NV) sales actually increased by 23%, a sharp uptick. Many realtors report that first time home buyers are calling, looking for bargains and hoping to cash in on the new $8,000 tax incentive recently passed by the Obama administration.

This little pink house in Merced CA has 3 bedrooms, one bath, and a big fenced-in backyard all for only $49,900. (MLS # 9010053)

Foreclosure sales and distressed sales are dominating the market, especially in the four highest foreclosure states. Despite this bad news, the fact that sales to first time home buyers are now moving up sharply in these same areas of the country is a good sign. Foreign investors looking for property in the U.S. would be well advised to focus their efforts in the West while the selection and the prices are still very good.

While the midwestern and eastern portions of the U.S. are not quite as badly hit by the foreclosure crisis as the boom states in the west, many parts of the industrial midwest and eastern U.S. have seen severe depreciation of home values due to unemployment and the eroding industrial base. Even in New York City in the poshest areas, condo and luxury apartment values are off an average of 25% and are expected to keep falling.

All eyes are currently on the prospect of bankruptcy reform, which if passed, could prevent as many as half a million homes from going into foreclosure during the rest of 2009. Republicans vehemently oppose a measure currently before Congress which would allow bankruptcy judges to modify loans to keep bankrupt buyers in their homes.

Bankruptcy reform is also considered to be an incentive that could help push banks to cooperatie with the Obama loan modification program. If a lender knows that refusing to modify the loan through the federal program will send the same loan before a  bankruptcy judge (who will modify the loan as he sees fit), the lender is more likely to comply with the initial request in order to maintain some control over the terms.