2010 Real Estate Guide
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real estate
Top 10 states for foreclosure

No. 3: California -- At year-end 2009, the Golden State had 18 statistical metro areas where unemployment exceeded 10 percent -- with nine of its cities in the bottom 14 in employment, according to the USBLS. In the hard-hit region surrounding Ontario, San Bernardino and Riverside, home values spiked from around $300,000 pre-boom to $800,000-plus at the market's zenith. When the bust hit, jobs were whacked quickly along with home values. "We learned to borrow against everything," says Fitch. "Buyers should buy houses for less than what they qualify for -- not because it's the largest or because it's a bargain."

Pamela Haile, a Realtor with Coldwell Banker Gonella Realty in hard-hit Merced, Calif. -- the top foreclosure city in the country -- says, "We had a lot of lender fraud going on with non-English speaking residents. They were rushed through with lenders who added income to their applications and lied to buyers that it was legal." In Merced, one in every 83 homes received a foreclosure filing in November. "Builders were manufacturing homes using an assembly line (in the area)," explains Julie Jalone of Roseville, Calif.-based MagnumOne Realty. "These homes were sold, sometimes in lottery style, before they were even built." Consequently, she says, owners with mortgages higher than the purchase price came to represent a large portion of the market.

No. 4: Arizona -- The 8.7 percent jobless rate in Phoenix-Mesa-Scottsdale is the lowest of the top five foreclosure states. However, Arizona foreclosure activity still jumped nearly 8 percent in November with one in every 186 homes getting a notice.

Despite a breakneck growth rate through the past decade, the area remains overbuilt residentially and commercially, says Kevin Schuck, senior vice president for CB Richard Ellis, a national commercial real estate firm. All the growth fueled a run-up in service-related and construction-related jobs "that gave people a false sense that it would continue forever," he says. In Phoenix and other high-foreclosure markets, banks are holding back foreclosure inventory to keep from flooding the market, Sharga says. Nevertheless, "we don't think the (overall U.S.) market will not feel much better until 2013," he says.

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No. 5: Idaho -- The inclusion of Idaho, where one in every 259 homes received a filing in November, in the top five may surprise some -- but not Dale Alverson, certified buyer-broker with Boise, Idaho-based 43 Degrees North Real Estate. "It's not really surprising considering we had 20 percent-plus appreciation annually from 2003-2006," he says. "What economy can sustain that?" Add in interest-only loans, "stated-income" loans and investor over- exuberance, "and you had all the ingredients for the perfect real estate tsunami."

On the upside, buying opportunities currently abound in most distressed markets. "As many savvy billionaires have stated, 'Buy when everyone else is selling and sell when everyone else is buying,'" Alverson says.

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