Of the 4 recent homes that our investor clients purchased and the other 3 homes we helped lease out, 3 tenants just had their own homes go into foreclosure, 2 sold homes by short sale and 2 tenants had to move because their landlord just went into foreclosure.  

That brings up several issues to discuss just not here and it makes clear the transition in which the market is in. 

Actually it's quite extraordinary: this transfer of property from one to the other.

Pretty much all the properties purchased in 2005 to 2007 are now upside down: some purchased as far back as 2002 are upside down.  Needless to say a lot of inventory is worth much less then the debt on it.  This is especially prevalent on the outskirts of the valley where most of the irrational exuberance occurred. 

Unless there are special circumstances the entire inventory of these homes is and will need to turnover via short sale or foreclosure.  It's been doing so for over a year now.

Imagine a compete devaluation of a city where by the current owners are forced to by circumstance or choose to let the homes go. 

The new values will stay for a while and it may be decades before most of these homes see the peak of 2006. 

This complete devaluation means that most of the city is moving, each home one by one is getting a new owner and resident.  Many of these same residents who left their home simply moved down the street.

Here's the chain.

Homeowners and investors who purchased during the high tide are going into foreclosure.

Most of the homes went into or are going into foreclosure or being sold via short sale.

There are new buyers coming into the market.  Many are first time home buyers, new residents to the state, move down or move up buyers, vacation home buyers and investors.

The people that left their homes often become tenants of the homes purchased by investors.

The investors in-due time will sell the homes and many of the people who sold in distress will be back in the market buying.

In the current 2009 year, 17-20% of the residential properties sold were purchased by investors.  That number peaked at 1,900 properties in June 2009 but remains strong.  Though there are a lot of tenants out there, the lower prices, lower purchase costs and overall housing depreciation has brought the rents down.

An that is a casualty in this market: the multifamily properties, especially for owners who also purchased during the peak or near it.  Depreciation on leveraged assets is often the source of the investments death.  This in addition to other factors affecting rental rates for multifamily properties means that many owners are hurting. 

The good of it all is that at some point in the future either hosing pressures ill build or inflation will kick-in and once again drive up rents and prices and it will be the buyers after the fall that will be the new wealthy or well off, just like the investors and buyers who purchased in the early 1990's.

Until then the nice little chain of property transfer will continue helping move the market along through the the transition: entire cities and neighborhoods.