80-20 Rule of Foreclosures May 2009The Pareto Principle is a statistical concept most commonly known as the 80/20 Rule.

It says 80 percent of the effects come from 20 of the causes.

Apparently, the 80/20 Rule applies to foreclosures, too — at least according to data compiled by foreclosure-tracking firm RealtyTrac.

Based on data from May, 11 states accounted for 80% of the country’s foreclosure activity. The remaining 20% was spread across the 39 others.

That’s 80/20 almost to the tee.

The disparity goes deeper that that, though.  The top three states in RealtyTrac’s list — California, Florida, Nevada — were home to half of May’s foreclosure-related actions.

Clearly, foreclosures are concentrated in certain geographies.

But, no matter in which state you live, foreclosures still impact you.  This is because mortgage lenders are often national companies, lending in all 50 states.

When home loans go bad — in any state — lenders respond by increasing downpayment requirements and by adding new borrowing hurdles.  If you’ve applied for a mortgage in the last 18 months, you’ve experienced this phenomenon personally.

On the other side, if you’re a home buyer in a foreclosure-heavy state, you’re finding terrific value versus several years ago.  It’s one reason why Existing Home Sales in the West Region are up by 19 percent from last year, for example.

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