Home-buying hangovers

Is it mere coincidence that Stockton was the nation's hottest home buying market in 2001 and now leads the nation in the number of foreclosures? Dan Green, a mortgage planner who writes The Mortgage Reports, suspects there's a connection. Here's the sequence of events over the past five years in Stockton and other lower-cost California markets: Demand outpacing supply leads to appreciation. That brings in builders and then buyers and then more builders. Prices keep going up - to the point where much of the buying involves investors (aka speculators) looking to turn a quick profit. Trouble is, these investors are carrying a bunch of mortgages, and when appreciation slows (or even declines) and there's not much left to borrow against, the homeowner/speculator can't keep up with monthly payments. The speculators walk and the foreclosures follow.

CALIFORNIA'S TOP FORECLOSURE CITIES (APRIL, 2007)
1-Stockton
2-Vallejo-Fairfield
4-Riverside-San Bernardino
6-Modesto
7-Sacramento
8-Merced

CALIFORNIA'S HOTTEST HOME BUYING MARKETS (2001)
1-Stockton-Lodi (23.5%)
2-Modesto (21.4%)
3-Salinas (21.2%)
4-Santa Rosa (18.3%)
5-Vallejo-Fairfield-Napa (17.4%)