Benefits Of An ARM Loan Program - Part 1

Happy Monday to you all!

I've received many inquires on the many loan programs available out there and I just want touch on the one that most people inquire about - the ARM loan.

There many flavors to this type of loan, so what I'm going to do is make it a sort of mini series for the next few days.

Part 1 is basically the benefits and main features of an ARM loan program:

An ARM allows you to receive more money at a lower interest rate than a fixed rate loan. If you are planning to move within a few years, you can save money and avoid rising payments.

Many investors choose adjustable rate mortgages on houses they will be rennovating for resale. The lower start rate means a lower monthly payment and increased cash flow. Many investors plan to resale the house in a short period of time so rate adjustment isn't an issue.

Adjustable Rate Mortgages start out with a lower payment than fixed rate mortgages, with the possibility of adjusting higher in the future if interest rates rise. This can be beneficial if you want the lower payment now, but expect your salary to increase in the future.

If you would like to lower your monthly mortgage payment to be able to apply more money in other places of your life an ARM loan may be right for you. An ARM loan should provide you a much better interest rate than a fixed rate loan, therefore giving you a lower payment each month. This in turn will free up some money each month in order for you to use the money where it is needed more at this time.

If you only plan on being in your home for a short period of time, then an ARM can be advantageous to you. If you know you will only be in the home for 3-5 years, then you would be better off taking a 5 year ARM. The lower interest rate that it offers will save you hundreds of dollars while in the home.

When considering an ARM loan you should take into consideration your lifestyle and future goals. ARM loans can benefit you with the reduced interest payments because of a lower interest rate which will allow you to invest more money into principal reduction and other valuable investments.

The fixed interest rate portion of an ARM can be as short as the first month of the loan, or be fixed all the way up to the first 10 years of the loan. Depending on how long you are going to be in the property you can choose an ARM . Each ARM also has different guidelines regarding how much the the interest rate can fluxuate at each adjustment, and what the lifetime maximum and minimum interest rates are for the loan. If you think that you are likely to see the adjustment period you should look at these numbers since they will control how quickly your payments can go up or down.

Tomorrow Part 2 - Option ARMs

Bay Area Home Builders Slashing Prices!

Home builders, who have been riding the crest of the housing wave for much of the past decade, now find themselves in the trough.

With many more houses on the market than there are buyers for them, builders are slashing prices and offering perks from free granite countertops and hardwood floors to paid vacations to Hawaii.

In Sacramento, Centex Corp. has slashed home prices by about $100,000, bringing down the average price of its new homes to less than $400,000.

Meanwhile, in eastern Contra Costa County, Pulte Homes is trying to get sales moving by dangling vacations to Hawaii and New York to those who purchase homes in the developer's Magnolia Park project in Oakley.

If that were not enough, developers are also fighting cases of jitters from a growing number of buyers who are canceling purchases, thus forcing them to sell homes twice.

As of September there were 19,187 newly built condos, townhouses and single-family homes in the nine Bay Area counties without buyers, according to Hanley Wood, a real estate consulting firm. That's more than a 41 percent jump from 13,591 units in September of 2005.

Although the aggressive promotions are beginning to make a dent, builders say it's going to take at least another year before the market recovers.

"My gut tells me it's going to take us all or most of 2007 to chew through some of these issues," said Steve Delva, president of the South Bay division for Standard Pacific Homes. "Unfortunately, a lot of the answers to some of these housing issues only get solved by time."

Builders are under pressure to sell homes as soon as they are complete to lower their operating costs, pay off loans and, in the case of public companies, keep shareholders happy.

And shareholders are decidedly unhappy. The Bloomberg U.S. Homebuilders' Index, which tracks stocks of 18 of the country's largest builders, is down 25.3 percent this year.

So builders, unlike owners of existing homes, are more willing to take a hit to move a home.

"We'd rather take a lower return -- or no return -- to get that capital back in the door and reinvested," said Steve Kalmbach, president of Pulte's Bay Area division. "We cannot sit on standing inventory."

New homes typically see the biggest drop in prices during a down market because builders don't have the luxury of waiting months to find a buyer willing to pay the asking price, said Leslie Appleton-Young, chief economist for the California Association of Realtors.

While the median price of an existing single-family home actually rose a modest 1.1 percent to $653,000 in September from a year earlier, the price of a new home plunged 12.3 percent to $584,000.

The number of new-home sales fell 22 percent.

"For builders, an unoccupied housing unit is inventory that needs to be moved quickly because it's impacting their bottom line," Appleton-Young said.

Exactly what goodies builders are offering and how much of a discount they're willing to negotiate varies dramatically around the Bay Area.

The market is strongest in the South Bay, where developers say they are offering few, if any, price breaks.

A strong resurgence in the technology sector and solid job growth in Silicon Valley are driving continued demand for new homes. "You have higher household income and not as much supply on the market in the South Bay," Pulte's Kalmbach said.

Meanwhile, the decline in new- home sales in the Bay Area has been apparent in Contra Costa County, where the price of a new home fell 20.5 percent from $717,000 to $570,000 between October 2005 and October 2006, according to DataQuick.

The problem is especially noticeable in the eastern parts of the county in such cities as Oakley and Brentwood, which saw a sharp increase in new-home building during the four-year run-up in the real estate market.

At Pulte's Magnolia Park development in Oakley, a 400-home project that includes three communities, the builder is offering a free vacation, footing the bill for a hotel and airfare for two, to such destinations as Hawaii and New York.

The homes in Magnolia Park range from $485,900 to $745,900, according to the company's Web site.

The promotion follows a region-wide Pulte sales blitz that ended in October, which offered a package of givebacks to buyers worth as much as $99,000 at the developer's priciest community, Verona in Dublin, where homes start at $1.12 million.

That promotion led to the sale of 250 homes, according to Kalmbach. "A lot of buyers come in and if there's not an incentive, they're asking themselves what the motivation is to step forward," he said. "We had a huge month of sales both in September and October."

Developers have also been struggling with a rising number of cancellations as potential buyers decide to forgo their deposits and walk away.

"People sign up and find out they can't qualify," said Standard Pacific's Delva. "Some people just say, 'We're too nervous and we're going to wait and see.' "

The cancellation rate for Standard Pacific's South Bay division -- which includes San Jose, Monterey, Hayward and Fremont -- is about 25 to 30 percent, Delva said. In a normal market, buyers bail out at a rate of 10 to 15 percent, he said. Last year, the cancellation rate was less than 10 percent.

Toll Bros Inc., the luxury home-builder with projects in San Ramon, Dublin and Sunnyvale among other Bay Area locations, cited a high number of cancellations in Northern California when it reported this month that homebuilding revenue fell 10 percent in the third quarter.

Most of the time builders simply take a home that has fallen out of contract and put it back on the market. Reselling a home that has been built with unusual custom touches -- Delva gave the example of lime green walls and a purple carpet -- can be trickier.

Still, the extent of cancellations, price cuts and incentives in the Bay Area market is far less than in other parts of California, such as Sacramento, and many other cities around the country, said Keitaro Matsuda, senior economist at Union Bank of California.

"Our economic fundamentals are stronger and the amount of excess supply is much, much smaller," Matsuda said. "That tends to be the case because it is much harder to get permits and start building something here."

That's not the case in Sacramento, where developers say that price cuts have been much more dramatic than anyplace in the Bay Area.

The average price of a home area has fallen by about $100,000 to the high $300,000-range at Centex Homes developments in Sacramento, said John Ochsner, Centex's executive vice president of the Northern California region.

"Buyers over there are demanding price reductions and incentives and we're responding to that," Ochsner said. "We're backing off on our starts because we do want to control our inventory there. Buyers have all the power at the moment."

Ochsner said that Centex's incentive programs include giveaways of granite countertops and hardwood floors. His company has not offered free trips or similar promotions, he said.

Like Centex, builders across the state are responding to the down market by cutting construction.

Statewide, just 6,727 permits were issued to build single-family homes in September, down 57 percent from the previous year. That's the fewest number of permits issued in the month of September in a decade, according to the Construction Industry Research Board.

At the national level, the Commerce Department released October statistics on Friday. New-home construction plunged to the lowest level in more than six years.

The decline, a sharp 14.6 percent from September, was the largest percentage decline in 19 months and pushed total activity to the lowest level since July 2000.

Nationwide, applications for new building permits, seen as a good sign of future plans, fell for an eighth consecutive month, declining 6.3 percent to an annual rate of 1.535 million units.

New-home construction wanes dramatically during housing market downturns because it's the only mechanism that the market has for allowing demand to catch up with supply, said Matsuda, the Union Bank economist.

"When the housing demand drops, people don't go around knocking down existing homes," he said. "It's always the new home segment that has to make the adjustment."

Even with the slowdown, builders still have projects in the pipeline that are entering the market.

Instead of offering incentives for their newest homes, builders say, they are simply asking for less money.

Standard Pacific is opening projects in Hayward, Palo Alto, Sunnyvale and Fremont in the coming months. "We're starting at lower price ranges than we would have expected six months ago," Delva said.

Flipping Real Estate

By William Bronchick

"Flipping" is the buzzword of the year in real estate: Flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work, and how you can profit?

Flipping Real Estate simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.

Flip Strategy #1: Buy, fix, and flip

Let's start with the most common form--the good, old "fix ‘n flip." This involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who will live in the house.

This method is tried and true and works very well. You can easily make $15,000 to $50,000 on one deal, depending on your market and how good you are at finding bargains.

The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you consider the cost of paying a real estate agent to sell the property.

Flip Strategy #2: Buy, refinance, and lease option

Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy.

The rent payment from your tenant/buyer should cover your mortgage payment. (If not, consider an interest-only or adjustable rate loan that is fixed for three years.)

When your tenant exercises his option, you reap a larger profit, since you don't have to pay a broker's fee. If the tenant exercises his option after twelve months, you benefit from a lower capital gains tax rate.

Flip Strategy #3: Buy and flip "as is"

Don't like to do fix-up work? Consider selling the property "as is" as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market.

This is especially the case with houses in "transitioning" neighborhoods. Make sure, of course, that you acquire the property cheap enough that you can sell it below market quickly and still profit.

Flip Strategy #4: Wholesale

Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won't make nearly as much as the rehabber, but you will realize your profit quickly.

Flip Strategy #5: Pre-construction

In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete.

If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true. You could end up losing money if the local economy tanks and you end up with a worthless condo that you can't sell for more than you paid. Use this approach very carefully…

Flip Strategy #6: Scouting

The Scout is an information gatherer, so not technically a property flipper. He is the "bird dog" who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties.

The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make $500 to $1,000 each time he provides information that leads to a purchase by another investor.

Flip Strategy #7: Illegal flipping

Okay, I am NOT advocating this approach because it is illegal. Illegal property-flipping schemes work as follows: Unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices.

In most cases, the investor, appraiser, and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan.

Since many of these loans are federally insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be illegal.

The fact is, "flipping" (as I described in the beginning of this article) is NOT illegal. Loan fraud in the process of flipping is what is illegal. So don't confuse the two. The other six ways to flip are very legal, very ethical, and very profitable!


"This article is reprinted here with permission from
Creative Real Estate Online at http://www.creonline.com"

New Homes Decline, But Median Price Rises

New-home sales resumed declining in October, but the median price increased.

Meanwhile, the U.S. economy was stronger last summer than first thought because businesses accumulated more inventory and trade was less of a drag. Gauges measuring third-quarter inflation were lowered slightly, according to Wednesday's data revisions.

Sales of single-family homes decreased by 3.2% to a seasonally adjusted annual rate of 1.004 million, the Commerce Department said Wednesday. September sales climbed 3.7% to 1.037 million, revised from a previously estimated 5.3% advance to 1.075 million. Sales increased 2.1% in August but fell 9.2% in July.

Related Links Join a reader discussion on the U.S. housing market.

The average price of a new home increased to $309,700 in October, up from $297,700 in September and $293,600 in October 2005, according to Commerce. The median price also rose, up to $248,500 last month from $218,200 in September and $243,900 in October 2005.

The sales numbers Wednesday were worse than what Wall Street expected. The median estimate of 23 economists surveyed by Dow Jones Newswires was a 2.3% decrease to an annual rate of 1.050 million in October.

Year-to-year, sales were down 25.4% since October 2005 as the housing market softens. Yet, in a glimmer of hope, the National Association of Realtors reported Tuesday sales of previously owned homes rose in October for the first time in eight months; still, year over year, sales were 11.5% lower.

New-home inventories receded in October. There were an estimated 558,000 homes for sale at the end of the month, the Commerce data Wednesday showed. That represented a 7.0 months' supply at the current sales rate. An estimated 562,000 homes were for sale at the end of September, a 6.7 months' inventory.

Financing costs drifted down in October. The average rate on a 30-year mortgage was 6.36%. It was 6.40% a month earlier -- yet 6.07% in October 2005.

By region, new-home sales last month fell 1.7% in the South, 5.6% in the Midwest and 39.0% in the Northeast. Demand was 3.2% higher in the West. Based on figures unadjusted for seasonal factors, an estimated 77,000 homes were actually sold last month in the U.S., down from 82,000 in September.

GDP Revised Up

Gross domestic product increased at a 2.2% annual rate July through September, the Commerce Department said Wednesday in its first revision to third-quarter 2006 GDP. The government initially estimated growth at 1.6%.

GDP has weakened as the housing slump weights down the economy. Second-quarter growth was 2.6% and GDP raced ahead at a 5.6% pace in the first three months of 2006.

The government's price index for personal consumption increased 2.4%, lower than the previously estimated 2.5% climb but below the second quarter's 4.0% rise. The PCE price gauge excluding food and energy increased 2.2%, lower than the previously estimated 2.3% climb and below the second quarter's 2.7% rise.

Corporate profits after taxes climbed 4.6% to $1.167 trillion in July through September from the second quarter, the report showed. In the second quarter, profits increased 0.3%. Year-to-year, profits surged 31.5% since the third quarter of 2005.

Revisions to inventories and imports were behind the adjustment to GDP, which is a measure of all goods and services produced in the economy. Wall Street expected a smaller upward revision to third-quarter GDP; the median estimate of 22 economists surveyed by Dow Jones Newswires was a 1.8% increase.

The revisions released Wednesday showed businesses increased inventories by $58.0 billion; originally, Commerce estimated a $50.7 billion increase. Companies had lifted stocks $53.7 billion in the second quarter.

The accumulation of goods added 0.16 percentage point to third-quarter GDP. Originally, Commerce said inventories subtracted 0.10 percentage point from GDP. Real final sales of domestic product, which is GDP less the change in private inventories, climbed 2.1%. The original estimate was a 1.7% increase. Second-quarter sales also rose 2.1%.

International trade was less of a restraint on GDP because imports didn't climb as much as first thought, according to the revised data. U.S. exports rose by 6.3%. Imports increased 5.3%. Originally, exports were seen up 6.5% and imports 7.8% higher. So, trade reduced GDP by 0.21 percentage points; initially, Commerce said trade cut third-quarter GDP by 0.58 percentage points. In the second quarter, exports had gone up by 6.2% and imports climbed 1.4%.

Residential fixed investment, which includes spending on housing, plunged by 18.0% in the third quarter, a bigger drop than the originally estimated 17.4%. Second-quarter spending tumbled 11.1%. The 18.0% drop translated to a cut of 1.16 percentage points in third-quarter GDP, and it marked the sharpest fall since 21.7% in the first quarter of 1991.

Businesses increased third-quarter spending more than previously thought. Outlays rose 10.0% July through September, higher than the originally estimated 8.6% advance. Business spending rose 4.4% in the second quarter. Third-quarter investment in structures surged 16.7%. Equipment and software increased 7.2%.

Third-quarter spending by consumers increased 2.9%, down from a previously reported 3.1% but above the second quarter's 2.6% advance.

Consumer spending accounts for the lion's share of economic activity -- about two-thirds. It contributed 1.99 percentage points to GDP in the third quarter; the original estimate was a contribution of 2.13 percentage points.

Purchases of durable goods rose 6.0% in July through September, below the previously reported 8.4% increase. Durables dipped 0.1% in the second quarter. Durable goods are expensive items designed to last at least three years, such as cars. Third-quarter non-durables spending increased by 1.1%. Services spending went 3.1% higher.

Federal government spending increased by 1.5%, revised down from an initially estimated 1.7% increase. Second-quarter spending fell 4.5%. State and local government outlays increased 2.6%.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose 2.1%, up from a previously estimated 2.0% climb but below the second quarter's 4.0% rise.

The chain-weighted GDP price index rose 1.8%, unchanged from the first estimate but below the second quarter's 3.3% rise.

Top 10 Metro Foreclosure Rates

RealtyTrac

Elevated foreclosure rates could be coming to a city near you.

Nationwide, 318,355 properties entered some stage of foreclosure during the third quarter of 2006, a 43 percent increase from a year ago and a foreclosure rate of one new foreclosure filing for every 363 households, according to RealtyTrac, an online marketplace for foreclosure properties.

Many cities documented foreclosure rates well above the national average. Leading the foreclosure rate charge were Detroit, Fort Lauderdale and Denver. Completing the top 10 were Miami, Dallas, Indianapolis, Fort Worth, Atlanta, Las Vegas and Memphis. Analysts attribute the sharp increase in foreclosures to higher interest rates, a softening real estate market and the upward adjustment of a large portion of adjustable-rate mortgages taken out in the last few years by many American borrowers.

"In the next 15 months, more than $1 trillion in loans are due to adjust upward," said James J. Saccacio, chief executive officer of RealtyTrac. "With such a large volume of these loans set to increase, it is a trend that definitely bears watching."

Top 10 Cities

Many experts believe the real estate slump could get worse before it gets better. On the other hand, a slow housing market with a glut of foreclosures presents more opportunities for buyers and investors to find bargains and profit from those bargains - if they have the patience to buy and hold. Here's a look at the Top 10 foreclosure cities.

Top 10 Metro Foreclosure Rates - Q3 2006

Metro Area	% of Households in Foreclosure	# Households for Every Foreclosure	Foreclosure Rate to National Average
1. Detroit, MI	1.25%	80	4.5
2. Fort Lauderdale, FL	1.14%	88	4.1
3. Denver, CO	1.11%	90	4.0
4. Miami, FL	1.10%	91	4.0
5. Dallas, TX	1.01%	99	3.7
6. Indianapolis, IN	1.00%	100	3.6
7. Fort Worth, TX	0.99%	101	3.6
8. Atlanta, GA	0.94%	107	3.4
9. Las Vegas, NV	0.87%	115	3.2
10. Memphis, TN	0.70%	144	2.5
% of Households in Foreclosure: Total foreclosures divided by the total households in a metro.
# of Households Per Foreclosure: Total households divided by the total foreclosures in a metro (a.k.a. "Foreclosure Rate").
Foreclosure Rate to National Average: Foreclosure rate in a metro divided by the national average foreclosure rate.

No. 1: Detroit, MI

Detroit's foreclosure rate of one new foreclosure filing for every 80 households was more than 4.5 times the national average. Job losses in the automotive manufacturing sector, a sluggish economy, falling home values and upward-adjusting mortgages are pushing more Detroit homeowners into foreclosure. Detroit automakers and suppliers are cutting thousands of jobs as part of a massive industry restructuring, leaving thousands of laid-off or underemployed Michigan residents swimming in red ink.

And with the auto industry showing no sign of recovery, the future looks bleak for Detroit. The city has lost about 100,000 jobs in the last five years, and total employment is expected to continue to decline until the end of the decade, according to a recent report by Moody's Economy.com.

No. 2: Fort Lauderdale, FL

Fort Lauderdale's foreclosure rate ranked second highest in the nation among major metropolitan areas, with one new foreclosure filing for every 88 households - more than four times the national average.

Like the rest of the nation, the Sunshine State is experiencing a cooling economy, plus rises in property insurance premiums and interest rates. These factors have made it tougher for South Florida homeowners to keep up with their house payments.

South Florida real estate agent Bill Gardner said a lot of properties are sitting on the market unsold because the sellers have financed their properties at 100 percent of what the properties are worth, leaving the sellers no room to reduce their asking price. These sellers are more susceptible to default or foreclosure, especially since investors are now more cautious about sinking money into the housing market.

"Most of the people who are buying now actually need a place to live. And I think all of the investors are kind of pulling out of the market," Gardner said. "My only sales I am making are with people who want to occupy. The properties that are selling are the ones that are under-priced."

No. 3: Denver, CO

Two years ago, the metro Denver region was one of the hottest housing markets in the country. Houses sold in one day for full price. Today, foreclosures are so high in Denver that the state just set up a first-of-its-kind foreclosure help hotline. The hotline received 1,400 calls on the first day.

The Denver region posted the third highest foreclosure rate among the country's 100 largest metropolitan areas during the third quarter of 2006. One out of every 90 households in the metro area entered some stage of foreclosure during the quarter, compared with one out of 363 households nationally. Broad economic factors - such as a housing surplus, stagnant prices, layoffs and the heavy use of adjustable-rate mortgages and interest-only mortgages - contributed to Denver's growing number of foreclosures.

No. 4: Miami, FL

Miami ranked fourth, with one new foreclosure filing for every 91 household, although many of the properties entering into foreclosure in South Florida do not move through the entire process. Steep rises in prices the past few years enable many owners to sell out before losing their properties entirely.

Bill Gardner, the South Florida real estate agent, said buyers and investors should take advantage of the market while it lasts, which he doesn't believe will be for much longer.

"I think after the first of the year people are still going to want to move to Miami," he said. "Even though it's slower now, there are still bargains to be had and now is the time to buy.

"People looking for short-term gains, they missed that boat. But for the long haul it's still a good investment."

No. 5: Dallas, TX

Foreclosure postings in the Dallas area have surged in the past two years, and the city's foreclosure rate consistently ranks among the nation's highest. Interest-only mortgages have accounted for about 10 percent of mortgages in Dallas-Fort Worth this year, according to LoanPerformance, a San Francisco company that collects and analyzes mortgage data.

Stagnated income and rising property taxes have also contributed to the foreclosure spike occurring all over North Texas. More than 9,000 foreclosure filings were recorded in Dallas County during the third quarter of 2006, more than twice the number recorded in the third quarter of 2005.

Dallas real estate agent Jon Callaway said the prevalence of 100 percent financing is pushing many area residents into foreclosure.

"As long as 100 percent financing exists there will be an abnormal amount of people getting into financial troubles and unable to sell their home," he said. "The majority of the homes we see in trouble across the metroplex are 100 percent financing loans."

But Callaway believes the Dallas housing market is showing signs of recovery, an opinion supported by the fact that the area's foreclosure activity rose at a much slower pace than most of the other cities in the top 10.

"Investors from California, Arizona, Florida, Utah and eastern states are soaking up inventory, speculating we are going to be the next hot spot," he said. "I do see us pulling out of the stagnated market we have been in for the last five years and moving forward at a 5 to 7 percent appreciating pace."

No. 6: Indianapolis, IN

Like Detroit, Indianapolis is a big automotive industry supplier that has suffered economic setbacks, and falling home prices have made it more difficult for homeowners in jeopardy to bail out with some profit. Of the top 10 cities on the list only Indianapolis reported decreasing foreclosure rates, with a 2 percent dip from the previous quarter.

No. 7: Fort Worth, TX

In Fort Worth, the median price of a home sold in October - $143,000 - is down 3 percent from last year, according to the North Texas Real Estate Information System. Stagnated income and rising property taxes have contributed to the foreclosure spike occurring in Fort Worth and all over North Texas.

No. 8: Atlanta, GA

Atlanta ranked eighth in the country in foreclosure rate, reporting one new foreclosure filing for every 107 households - more than three times the national average.

"Mortgage fraud, liberal lending practices, and inexperienced investors, along with corporate layoffs and slashed pension funds are contributing causes for the high foreclosure rate," said Atlanta real estate agent Ken McCall.

No. 9: Las Vegas, NV

Experts say Las Vegas is outpacing the national rate as homeowners succumb to rising adjustable interest rates. Some homeowners who bought with no down payment now owe more than their homes are worth. And the foreclosure rate in Las Vegas shows no signs of slowing, with some predictions it could triple in the next six to nine months. One-third of the homes bought in Las Vegas in 2004 and 2005 were purchased using adjustable-rate mortgages. And as mortgage payments increase sharply for those with adjustable rate mortgages, the city's foreclosure rate could continue to rise by the end of the year and in early 2007.

No. 10: Memphis, TN

Memphis rounded out the Top 10 list with a foreclosure rate of one new foreclosure filing for every 144 households. The city's foreclosure rate was more than 2.5 times the national average and was up 2 percent from the previous quarter.

Memphis broker Tommie Criswell-Jones said foreclosures are present for a variety of reasons, including high-ratio loans, bankruptcy frequency, poor underwriting and mortgage fraud. She said Memphis ranks No. 8 in the country for mortgage fraud.

Criswell-Jones noted that the Memphis market is "slow and steady" and has not seen the dramatic increases in home prices in recent years. She cited strong consumer confidence and recent corporate relocations as factors that will help create a more balanced housing market in the near future.

"Sections of our MLS area have higher inventory than demand, but in those areas sales are still considered strong," she said. "We expect to see the local housing market adjust somewhat in line with the national trends, with a gentle slowdown in new home starts. We expect a more balanced market with sellers and buyers, and sales are expected to be at or slightly above 2006."

Distressed Real-Estate:Priced to Sell in 2007

As a weak housing market nudges the foreclosure rate higher, next year is looking promising for investors in distressed real estate.

So far, the U.S. housing slump hasn't produced a bonanza for such investors, but lenders stuck with foreclosed property are becoming more inclined to slash prices or sell properties through auctions, industry experts say.

"We're all going to have to be more creative in the next 12 to 24 months" in selling foreclosed homes, says Chad Neel, president and chief operating officer of Fidelity National Asset Management Solutions, a unit of Fidelity National Information Services Inc., Jacksonville, Fla. Mr. Neel's company helps lenders manage and sell foreclosed homes.

Related Links Join a reader discussion on the U.S. housing market.

Williams & Williams Inc., a Tulsa-based auctioneer, says its sales of foreclosed homes will nearly double this year to about 5,060. Dean Williams, chief executive of the auction firm, expects another near doubling of sales in 2007.

Dallas-based Hudson & Marshall Inc. expects its auction sales of foreclosed properties to total about 4,800 this year, up 23% from 2005. David Webb, co-owner of the auction company, believes sales will rise at least 20% in 2007.

The auction firms say their busiest auction markets recently have included Michigan, Ohio, Indiana, Pennsylvania, Texas and Colorado. "Word on the street is that California, Florida and Arizona will also be very active in the next 12 months," Mr. Webb says.

Lenders refer to foreclosed homes as REO, short for "real-estate owned." They generally try to sell REO homes as quickly as possible to minimize holding costs, such as those for insurance, taxes and lawn care.

In the first half of 2006, REO properties accounted for 3.1% of all U.S. home sales, up from 2.4% two years earlier, according to a study by First American Real Estate Solutions, a unit of First American Corp., Santa Ana, Calif. The study found that those homes sold at a median discount of 14% to their estimated value in the first half, compared with 12.5% two years before.

The discounts reflect the gap between the actual sale price for the homes and the value estimated by a computer model, which takes into account sales of comparable homes nearby and price trends.

It has taken a while for foreclosures to mount. The housing boom of recent years reduced foreclosure rates because most people who fell behind on their loans could refinance or quickly sell their homes for at least enough to pay off the loans. At the end of this year's second quarter, only about 1% of all home mortgage loans outstanding were in the foreclosure process, down from an average of 1.2% over the past decade, according to the Mortgage Bankers Association.

Doug Duncan, chief economist for the mortgage bankers, expects a modest rise in foreclosures over the next year or two. People with weak credit records who have taken out loans over the past year are falling behind on payments at a rapid clip, according to a recent report by mortgage analysts at UBS AG in New York.

Christopher Cagan, director of research and analytics at First American Real Estate Solutions, notes that REO sales are a lagging indicator of the housing market because at least a few months elapse between a borrower's default and the foreclosure. Dr. Cagan expects a modestly higher foreclosure rate and deeper discounts next year.

Discounts are likely to be larger in areas where inventories of unsold homes have soared, such as in parts of Arizona and Florida, Dr. Cagan says. Another big factor in determining demand for REO homes is local job and population growth.

In Los Angeles County, which has strong housing demand and an extreme shortage of space, the median discount on REO homes was just 1.7% in this year's first half. In Ohio's Cuyahoga County, where job losses have left a glut of empty homes, the discount was about 30%.
Most REO homes are listed by real-estate brokers and sold like ordinary houses. But lenders often turn to auctions when they see their REO inventories piling up.

Lenders that choose the auction route want to get "current market value, whatever it is, rather than sit on vacant property and speculate as to if or when it might sell," says Mr. Williams of the Tulsa-based auctioneer.

One recent buyer at a Hudson & Marshall auction was Warren Russell, who bought a 1,300-square-foot home in Detroit for just $1,500. Mr. Russell says the home is structurally sound but needs new windows, paint and some other items. He expects to spend about $10,000 renovating the home and then rent it out.

In considering purchases of foreclosed homes, Mr. Russell says, "you can't think, 'Would I live here?' There are people at every level of income that need a roof."