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Distressed Residential Real Estate News, Over 8.5 Million Homes On The Market. Punt!

The Rising Tide of Foreclosures 17 comments
by: Wealth Daily March 22, 2010 | about: IYR / RWR / RWX / XHB
Wealth Daily picture Wealth Daily

As sure as the two cardinals that are perched outside my window, I'm beginning to think that Lawrence Yun could use a lucky rabbit's foot or two.

Better yet, maybe he ought to consider spending the day combing through the grass in search of four-leafed clovers...

Either way, he can use all the help he can get this spring.

Because as any honest realtor will tell you, the next few months of activity are the ones that will set the tone for rest of the year. And given the ongoing free fall in housing, it is make-or-break time for the 2010 housing market.

As the NAR's chief economist is well aware, the open houses will either be on the quiet side this spring, or jammed with those buyers that Yun insists are still somewhere on the sidelines.

All I know is that after hanging his hopes on these mysterious folks for the last two years, Yun's sideline buyers have yet to materialize — even though all the king's horses and all the king's men have tried to lure them out of the woodwork.

The 2010 Housing Market Teeters on Edge

Meanwhile, the pain of those trapped by the fantasy of the bubble continues to grow as REOs and foreclosures add more supply to the bloated market.

In fact, based on data from the one of the nation's biggest mortgage servicers, nearly 7.5 million loans are in some stage of delinquency or foreclosure, while an additional one million properties are already bank-owned.

That's an 8.5 million "shadow inventory" of homes that needs to close just to clear the overhang of distressed properties alone. At present sales rates, that represents a nearly two-year supply.

Keep in mind, of course, that those are static figures. Three months from now, those figures will be even worse; 346,000 borrowers became delinquent for the first time in January, adding to the burden.

What's more, with nearly one-quarter of U.S. mortgages now "underwater," almost 11 million borrowers are now trapped in loans backed by assets, the value of which is dropping like a stone.

As a result, more and more homeowners are just simply walking away from their troubles — even when they can afford the payments.

For borrowers like Wynn Bloch, walking away was nothing more or less than a business decision, plain and simple. A retired psychologist, Bloch is a renter today after defaulting on her $385,000 2006 home purchase.

"There was not a chance that house was ever going to be worth anywhere near what my mortgage was," Bloch told the LA Times after finding out that comparable homes in her neighborhood were now selling in the $200,000s.

Hardly alone, these strategic defaults accounted for about 35% of the December 2009 defaults — up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago's Booth School of Business.

Think of it as a "thanks, but no thanks" on a grand scale.

We're From the Government and We're Here to Help

As for the alphabet soup of government programs designed to stem the foreclosure tide, they might as well be trying to drain the ocean with an eye dropper. Like everything else in this bust, it is extend and pretend all the way; nearly 70% of all modified loans re-default within 12 months anyways.

Take HAMP, for instance: This is the Home Affordable Mortgage Program that was supposed to save millions of homeowners from foreclosure.

According to the U.S. Treasury, just 170,000 borrowers nationwide have had their loans permanently changed under HAMP. That's a mere 5% of the 3.4 million borrowers who are eligible under the program.

But even then, that's only half of HAMP's problems. The other is — for the most part — the majority of these "saves" have only delayed the inevitable. Take a look:
permods

Consider this: Even after receiving a permanent modification, the median HAMP borrower is still left with a debt-to-income (DTI) ratio of nearly 60%! That ratio is simply off the charts — and it's an improvement from their previous loan.

In fact, before the industry jumped the shark, a 41% DTI was considered high in a more rational time.

Just think about it... After paying the mortgage, installment debt, alimony, 2nd liens, and other fixed payments, these median borrowers are left with just $1,086.52 before taxes to pay for everything else.

That leaves about $200 a week to pay for groceries, utilities, insurance, repairs, and other expenditures.

And while that is better than the $125 a week they had before the modification, it's nowhere near enough to keep the majority of them from defaulting in the future. The numbers simply won't add up.

As a result, the foreclosure crisis will undoubtedly be with us for some time, weighing heavily on the housing market. And I haven't even brought up the prospect of the option arm debacle that will begin to bust later this year.

Meanwhile, the re-sale market continues to struggle.

Existing home sales dropped 7.2 percent in January after falling 16 percent in December — the biggest declines since comparable records began in 1999, according to figures from the National Association of Realtors.

And keep in mind that's with interest rates on a 30-year fixed rate under 5%. As the Fed pulls out of the mortgage market in the next two weeks, those rates have nowhere to go but up.

And according to my mortgage pals who have over 40 years in the business, this is the sum of all fears.

"Steve," they told me last week, "if rates go over 6%, you can stick a fork in it because at those levels, it's game over for housing." Already it is as bad as they have ever seen.

So maybe Lawrence Yun is just being optimistic when he says, "We will see weak near-term sales followed by a likely surge of existing-home sales in April, May, and June."

Personally, I think he would be better off rubbing Buddha's belly.

Disclosure: No positions
About the author: Wealth Daily
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Unique investment ideas, tips, strategies and insights from our team of editors: Brian Hicks (author of the bestselling book, Profit from the Peak), Steve Christ, Christian DeHaemer, Ian Cooper, Nick Hodge and Adam Sharp.

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o wrocnrob
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Is there a solution? The only way is to put more people into homes. Some kind of "rent-to-own" or equity participation agreement could get value from these assets, which need to bubble again. I don't understand why they feel the need to resort to 50 or 25 cents on the dollar.

It ain't a bubble till it breaks - rob
Mar 22 10:58 AM Reply
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o Malkiel
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I chose the screen name "Malkiel" as a sideways tribute to Burton Malkiel's beloved "Random Walk Down Wall Street". The book had been out forever and I found to my embarassment a couple of years ago that Mr. Malkiel was not only still alive and well, but young and chipper. I... More
I don't think buyers will find 6% a scary number if there are significant bargains out there--sales could be brisk if buyers feel like they're getting a great deal. That may be the crux of the matter--will sellers see the iceberg coming and head for the lifeboats in time?
Mar 22 11:03 AM Reply
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o tinytuna
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Now that I am retired and not earning wages' income any longer, I would like to learn more about investing income. I don't mind sharing a comment either. Seeking Alpha appears to be an excellent forum for both. Some of my own views on these topics can be found at:... More
The deal is irrelevant now and for awhile. When responsible people can feel confident about their income to meet 15 or 30 years of debt paymnets, then the market will chip away at the backlog.
Mar 22 03:30 PM Reply
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Malkiel, they are already in the lifeboat, and the ice berg is still coming. The popping bubble you will hear is the hot air and lies of our green shoots and great recovery.
Mar 22 11:24 AM Reply
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o chekurtab
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I'm a survivor of communism brainwashing (via escape from USSR) and capitalism greed (via marriage and divorce). Swear not to get trapped by another "ISM" or propaganda.
Good article. Foreclosures has been rising and still have a long way to go. Large segment of mortgage pie are adjustable mortgages that are set to adjust in 2010 all way into 2012. That can only make matters worse.
Don't forget about commercial real estate bubble. I'm afraid the real estate will take decades to recover.
Mar 22 01:58 PM Reply
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chekurtab,

I believe a large amount of those mortgages are in fact prime, conforming, 5/25's or 7/23's. Most of those will adjust to a spread to an average libor or CMT.

Mine is a perfect example: 12 month CMT plus 260 BPS. Current rate is 3.05%. Many of the loans you speak of will actually see a reduction in their payments, not an increase.

I know this doesn't stop the strategic defaulters, but it won't cause the payment shock that sub-prime borrowers experienced.
Mar 22 08:56 PM Reply
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o JIR11
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Alex_G:

I agree. Mine reset at 6 mo LIBOR + 225 bps. my current rate is 2.75%; however, I've seen 6 mo LIBOR tick up each week and is now close to 45 bps.

I think the sticker shock for people like us will come in short time, however, as inflation kicks in.
Mar 23 01:05 PM Reply
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I don't think we'll see short rates go up to where libor + 225 bps will exceed current 30 year rates in the next couple of years.
Mar 23 03:09 PM Reply
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o Griz
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Not buying the hype.
Unless we are talking about option ARM's where just about all borrowers were choosing the lowest possible payment. This particularly nasty instrument lets the borrower pay less than the full interest payment required, let alone not paying for any principle.

The pain really comes when these loans reset (possibly at a lower rate but more likely at a higher, non-teaser rate), and become fully amortizing. If the borrower was consistently paying the lowest payment possible for say 5 years, then his principle balance is probably 20 - 25% higher than when he started. Once a fully amortizing payment is required, paying a portion of the now larger principle and full interest likely at a higher rate, these borrowers could see their payments likely double or triple.

I think many of these folks are staying in their homes taking advantage of the low payments, full-well knowing that they are so far underwater that it won't be worth saving. As soon as that reset comes (both principle and interest rate), they will join those strategically defaulters as well.
Mar 23 01:40 PM Reply
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o BUZZER
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Retired laborer/ surveyor/ engineer/ musician/ entrepreneur/ venture capitalist still investing primarily in equities around the world. Born in Germany, emigrated to Canada as a child, English is my second language and I excelled at mathematics in school. Was employed for 6 years after... More
Should it surprise anyone that if you can sell furniture with no cash required for 2 years, that selling houses would be attempted using the same format?
Mar 23 02:03 PM Reply
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A lot of those option arm buyers have already defaulted. It would be interesting to see the numbers and charts updated to people current on their payments that haven't adjusted up yet to full amortization.
Mar 23 03:12 PM Reply
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There may very well be some excitement and price stabilisation in the coming months. Some markets will probably even go up. The problem is that most people are sideline buyers that are stuck in houses they can't sell for several reasons. Walk-aways may be sideline buyers, but their credit will not allow them to buy so they'll end up renting for at least 3 years. It is really up to first time buyers. The low end houses are the ones that will sell, further driving down prices on better homes. This whole thing is going to suck for a long time I'm afraid.
Mar 22 04:03 PM Reply
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o ryanclarke
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As Uncle Ben refuses to let the U.S. economy transition to a non hydrocarbon transportation model ... GM has a better chance of getting South Korea to supply the lithium it needs for the new Volt by scavaging the bathrooms of all the bipolar pill poppers in America ... I have made the reluntant... More
Unless King Obama can convince the Saudis that $50 ( and not $80 ) per drum for oil is a fair price .. the consumer in the U.S. is going to be DEAD.

The big boy banks can hide debt forever ... given the FASB rule changes in March 2009 ... but Bernanke can't print more oil ... unless he can come up with new technology that allows the Fed printing press to do as such.
Mar 22 06:14 PM Reply
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o Robert Castellano
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Dr. Robert N. Castellano, president of The Information Network (http://www.theinformationnet.com/), received a Ph.D. degree in solid state chemistry from Oxford University (England). He has had ten years experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford... More
o Company: The Information Network
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Why are you blaming the Saudis? Blame the speculators and the refineries who are shutting down production to increase prices.
Mar 23 10:10 AM Reply
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o BUZZER
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Retired laborer/ surveyor/ engineer/ musician/ entrepreneur/ venture capitalist still investing primarily in equities around the world. Born in Germany, emigrated to Canada as a child, English is my second language and I excelled at mathematics in school. Was employed for 6 years after... More
I can't understand why the Chinese don't come in and offer 30% of the asking prices and buy up whole subdivisions to rent out to the former owners.

It makes a lot more sense than continuing to buy useless IOU's from the Treasury.
Mar 23 01:26 AM Reply
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o PainfullyAware
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I Am A Concerned Citizen As Well As A Manufacturing Engineer Heavily Involved In Distressed Real Estate. Points To Ponder: Debate Is The Distillation Of Reality. Reality Will Be Reality Whether Believed In Or Not. Pretending In Dire Circumstance Usually Results In Catastrophe. Complexity Favors... More
How Unfortunate That You Will See This Very Thing Across Many Asset Classes.

Just Before The Last Throws Of Contractual Construction, when Turmoil Becomes More Than Just Financial, "Governments" and their "Sovereign Backers" will "Purchase TANGIBLE Holdings, At Fractions, In Other Countries".

Where contracts survive => so will the centers of wealth, and the Instigators and Enablers that can escape the peoples wrath, from their respective origins.

Watch For It; The event will be slow to be seen but quick in the finality.

A Fundamental Change Will Occur Where "Value" Will Rule Over "Promissory" For All Nations.

Not Everything, Nor Every Point, Will Descend Into Chaos => Some Places Are Going To Get A Bit More "Dynamic", to say the least.
Mar 23 02:10 AM Reply
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o Scott Backus
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Biochemistry major working in the software industry with an outside interest in macro finance.
"And keep in mind that's with interest rates on a 30-year fixed rate under 5%. As the Fed pulls out of the mortgage market in the next two weeks, those rates have nowhere to go but up."

The fed may be pulling out of the mortgage market, but I bet they're prodding the banks to step in and buy the mortgages with all the fed cash on their books. The steep yield curve only helps.
Mar 23 01:26 AM Reply
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Friday, May 21, 2010

COMMERCIAL SHORT SALE. IT'S ON! 'THE PERFECT STORM'

Fw: [commercialshortsale] Welcome To Commercial Short Sale Yahoo Group...You Have Full Posting Privileges
...
From:
Earl Allen Boek
...
View Contact
To: Kao Saefong
Cc: Earl Allen Boek
You my lucky friend are invited to join, view or post as
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It's On! $550+ Million In Commercial Short Sales Coming
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Some of the few in the business so far are calling it......
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If you received this email in error please reply with REMOVE in the subject


----- Forwarded Message ----
From: Earl Allen
To: commercialshortsale@yahoogroups.com
Sent: Fri, May 21, 2010 4:48:20 AM
Subject: [commercialshortsale] Welcome To Commercial Short Sale Yahoo Group...You Have Full Posting Privileges



Please make sure to view the description of the group and it's intended purpose to it's users. Spammers or Scumbags will be reported. Don't even try. Now for a little housekeeping first please...

DISCLAIMER

PLEASE CONSIDER THE ENVIRONMENT BEFORE POSTING OR PRINTING
OR SENDING ANYTHING FROM THIS GROUP TO EMAIL

This transmittal may contain privileged and confidential information, and is intended only for the MEMBERS(s) listed above. If you are neither the intended recipient(s), nor a person responsible for the delivery of this transmittal to the intended recipient(s), you are hereby notified that any distribution or copying of this transmittal is prohibited. If you have received this transmittal in error, please notify sender immediately by return E-mail. This communication is confidential and solely for the MEMBERS. Opinions, conclusions and other information in these post which do not relate to the official business of MDRE INVESTMENT GROUP, LLC shall be understood as neither given nor endorsed by it. Be advised that these post, communications and or its attachments are not a commitment to buy, sell, invest in or lend money on real estate. NO commitments are being offered, granted, extended or agreed to by any group member, the founder of the group or MDRE INVESTMENT GROUP, LLC or its associates at this time.

Post made here and communications are for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any real estate or financial product, an official confirmation of any transaction, or as an official statement of MDRE INVESTMENT Group, LLC or its Principals. Email transmission cannot be guaranteed to be secure or error-free. Therefore, we do not represent that this information is complete or accurate and it should not be relied upon as such. All information is subject to change without notice.

Sender declares that he is not a licensed United States Securities Broker or Dealer or U.S. Investment Adviser, or a member of NASD and both parties declare that this e-mail is not intended for the buying, selling, or trading of securities, or the offering of counsel or advice with respect to any such activities. This is for your information only and is not to be construed as a solicitation for funds for or the sale REAL ESTATE OR of any securities. These transactions are based on private placements and do not come under the governance of the SEC. These programs are not securities under the United States Securities Act of 1933, or The Securities Exchange Act of 1934 and Regulations thereto, or The Investment Company Act of 1940 and the Rules & Regulations thereof. We are not registered with the SEC or NASD as financial advisers or dealers in securities per The Investment Advisers Act of 1940. This is merely for the informational and educational purposes and benefit of qualified accredited investors only.

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revised May 21, 2010 Subject to change at anytime, without notice.

Thanks For The Visit. Earl Allen Boek

Saturday, May 1, 2010

Home Prices Across The Nation Overpriced, Expect More Drops In Market Value

Tomorrow's Real Estate Trouble Spots

by Francesca Levy
Wednesday, April 28, 2010
provided by
In these cities, the housing crisis is expected to worsen.
Since the late 1970s casino-rich Atlantic City, N.J., has been a beachfront escape for poker aficionados and Keno-loving retirees from Philadelphia, Northern New Jersey and New York.
More from Forbes.com:

List: Tomorrow's Real Estate Trouble Spots

10 Tips for First-Time Home Buyers
Best Cities to Quit Renting and Buy a Home
Today, buying a home in Atlantic City is a gamble. Of 315 cities measured by Local Market Monitor, a Cary, N.C.-based real estate research firm, the Atlantic City metro is expected to experience the largest drop in home value over the next 12 months. A pocket of Northwestern cities where restrictions on building have artificially inflated prices, and smaller metros whose housing markets have benefited from internal migration, join Atlantic City on our list of real estate trouble spots.
Like cities in California, Florida, Nevada and Arizona, Atlantic City saw a dramatic run-up in prices during the housing boom due, in part, to speculative purchases of second homes; Atlantic County includes popular beachfront spots such as Margate. But while those bubble markets have already burst, Atlantic City still has significant price depreciation ahead; Local Market Monitor predicts the metro's median home price will fall 9% in the next year.
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"We have not seen the bottom in that market," says Jeffrey Otteau, president of East Brunswick, New Jersey-based Otteau Valuation Group, who says the city is still saddled with 12 months of unsold housing inventory.
As the effects of the recession sink in, the market for second homes in the metro has all but dried up, delaying a local recovery. What's more, tumbling revenues for the gambling industry have cost casino workers jobs, damaging the area's employment base.
Behind the Numbers
To put together our list of housing markets expected to drop, Local Market Monitor measured 315 Metropolitan Statistical Areas and selected the ones where it anticipated average home prices would fall most in the next 12 months. It then narrowed the list to cities where actual average home prices were at least 10% above their equilibrium price--that's where home prices should be based on economic fundamentals, and the price to which they will likely return. LMM calculates its equilibrium price and home value forecast based on trends in local jobs and income as well as the historic movement of home prices. Forbes relied on Local Market Monitor to rank each metro.
Cities in the Pacific Northwest appear on our list, in part, because some of the strictest land planning policies in the country have curbed sprawl and propped prices.
"It's very hard to overbuild in this region, because of urban growth boundaries and a fairly limited supply of developable property," says Randall Pozdena, managing director of ECONorthwest, a Eugene, Ore.-based consultancy. "Wages are 20 to 30% below what wages in the Bay Area are, but home prices are relatively high. We've created an artificial scarcity situation."
In Portland, Ore., homes are overvalued by 31%; in Bellingham, Wash., housing is 22% overpriced and in Eugene, Ore. homes are 21% more than they should be. Local Market Monitor expects prices in Portland to fall 9% in the next year; Eugene prices to drop by 8%; and Bellingham to see a 9% fall.
Smaller metros like Glens Falls, N.Y., Flagstaff, Ariz., and Salisbury, Md., all of which have a population under 200,000, are expected to see home prices drop 11%, 13% and 8%, respectively in the next year. In these places, small shifts in the local economy can cause big ripples.
"If you have one or two large employers in a smaller metro, they will have a greater impact on the jobs and income situation," says Carolyn Beggs, Local Market Monitor COO. "In larger metros there are more employers, so each employer won't have as great an effect."
All but two of the cities on our list saw above-average rates of population growth in the first half of the last decade. Some, like Provo, Utah, and Portland, Ore., saw their head counts rise by double-digit numbers (22% and 18%, respectively). Because in-migration typically boosts demand for housing, the national recession is due to take a particular toll on them.
"During a recession internal migration within the U.S. drops sharply," says Ingo Wizner, president of Local Market Monitor, noting that relocating becomes less financially feasible in hard times."Home prices in these markets are likely to fall for several years, but will then recover as above-average population growth resumes." Both Provo, a college town, and trendy Portland have sustaining appeal to young movers, which will likely pick up along with economic recovery.
Pozdena's outlook about Portland and other Pacific Northwest cities is more measured. While he predicts a short-term softening in prices in Portland, Bellingham and Eugene, he believes that limits to growth and continued in-migration will keep demand high.
"I do think we've been buoyed by some unusual forces," he says. "But I see most of those continuing, rather than reversing."
List: Tomorrow's Real Estate Trouble Spots
While metros like Miami, Las Vegas and Los Angeles have gained notoriety for plummeting home prices, it's not those markets that have the most to worry about now. These new housing trouble spots, most of which saw home prices peak after the national average, are set to see major price corrections in the next year. To identify them, Local Market Monitor, a Cary, N.C.-based real estate research firm found the Metropolitan Statistical Areas where it forecast the biggest average-home-price drops in the next 12 months, and where the actual average home price was 10% or more above what it would be without market volatility. Forbes relied on Local Market Monitor to rank each metro.
1. Metropolitan Statistical Area: Atlantic City-Hammonton, N.J.
car3.jpg
Saul Loeb/AFP/Getty Images

Equilibrium Home Price: $159,117.00
Overpriced: 54%
12-month Price Forecast: -9%
*Forbes relied on Local Market Monitor to rank each metro.


2. Metropolitan Statistical Area: Provo-Orem, Utah
car3.jpg
AP/George Frey

Equilibrium Home Price: $136,247.00
Overpriced: 44%
12-month Price Forecast:-12%
*Forbes relied on Local Market Monitor to rank each metro.


3. Metropolitan Statistical Area: Portland-Vancouver-Beaverton, Ore.-Wash.
car3.jpg
Shutterstock

Equilibrium Home Price: $189,818.00
Overpriced: 31%
12-month Price Forecast: -9%
*Forbes relied on Local Market Monitor to rank each metro.


4. Metropolitan Statistical Area: Glens Falls, N.Y.
car3.jpg
AP/Mike Groll

Equilibrium Home Price: $177,003.00
Overpriced: 22%
12-month Price Forecast: -11%
*Forbes relied on Local Market Monitor to rank each metro.


5. Metropolitan Statistical Area: Bellingham, Wash.
car3.jpg
Cynthia Smith/iStock

Equilibrium Home Price: $230,024.00
Overpriced: 22%
12-month Price Forecast: -9%
*Forbes relied on Local Market Monitor to rank each metro.


Click here to see the full list of Tomorrow's Real Estate Trouble Spots