Here is how Foreclosure Activity plays a very important role as a market indicator.
Markets Cool down: As we come out of a hot sellers market the buyers who purchased during the height of a market often find themselves in a tough situation. As the market tops out the next step is to stabilize and or decline. Should a market decline the buyers who purchased for top dollar, many times find themselves owing more on a home than the home is now worth. Additionally many people who may not have purchased may have taken a second mortgage on their home as many people use there home as an ATM Machine, pulling all of the equity out of their home.
Many people actually consolidate unsecured credit cards and put it as a secure debt in the home they live in. “MMMM” turn unsecured debt into a secure liability against their family’s home. Please never do this. The only good reason (in my opinion) to take a second mortgage on a home is to leverage it to buy more Real Estate as this is an appreciating asset when you buy them correctly.Anyhow I guess this is not the Suzy Orman show back to the market. Often as these folks own a home they are upside down on, they will let the home go into foreclosure.
Foreclosures drop the market prices. When many homes begin to flood the market the market cools and continues to cool as the influx of foreclosures increase. As these increase numbers of foreclosures get absorbed in the open market the inventory lessons and the laws of supply and demand kicks in and prices level off and eventually rebound and begin to grow.
Stabilization leads recovery: once you see the foreclosures have stabilized you are now position to watch for the great deals. The prices will no longer fall and buying now represents the best time for pricing as the next step is price appreciating. So keep a watch on Foreclosure activity and as it stabilizes you may have found the best time bar none to buy, buy, buy.