Those real estate investors who are active in the area of foreclosures already know two things both of which are proven by statistics and careful analysis: first the number of foreclosures that hit the market is a clear indicator of the state of the market itself and perversely enough the relationship is exactly the inverse. That means that the more foreclosures that come into the real estate market the better the market itself is growing and behaving in terms of money-making opportunities for all concerned. Second (and this is the fly in the ointment) the number of foreclosures that hit the real estate market must not rise above a certain level of homes being foreclosed or a certain percentage of the total number of home sales.
Real Estate investors who know how to read the market know that the moment the second occurs the first does not.
This is exactly what happened in the second half of 2007 and has sufficient momentum to continue to occur in the first few months of 2008. The reason the number of foreclosures increased beyond what the system can safely accommodate and beyond the level which it is normally designed to handle is down to predatory lending practices by specific mortgage lending providers, many of which have now, quite rightly, gone out of business.
The number of homes being foreclosed upon is also increasing for another reason. The moment foreclosures went above a certain level the system went out of kilter and a finely-tuned mechanism designed to act as a safety valve that stops the real estate market from overheating suddenly became a liability that threatened to destabilize our whole economy.
With the housing market in such a turmoil it was not too long before the cold wind of a credit crunch started to blow this way and make the hard cash from investors that mortgage lenders need in order to make loans and create profits, hard to come by.
This meant that people who would normally be getting mortgages and buying houses are suddenly finding it difficult to obtain credit and because lending affects more than just those who want to buy houses the economy itself is now beginning to feel a very cold wind blowing down its spine.
Interestingly enough what might just save everything from going belly up is the very thing that caused the problem in the first place. Get enough foreclosures happening at the right price and suddenly you have a whole new raft of first-time buyers entering the market and ready to revitalize it as they buy furniture, insurance, home furnishings, DIY staff and lawnmowers.
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