I live in the suburbs of Denver, Colorado. Colorado had the highest foreclosure rate of any state during 2006. Our foreclosure rate is about 30% higher in 2007 than it was in 2006. So our economy here must SUCK, right?? NOT!!!

Colorado's economy had a splendid 2006. Job growth was the strongest in years. Unemployment fell from 5.1% in 2005 to 4.3% in 2006. Unemployment continues to fall during 2007. In the Denver Metro area, unemployment has dropped dramatically, from 4.1% in January 2007 to about 3.4% currently (the latest data I have on Denver is from April 2007, so pardon me if I'm off by a tick or two, but you get the idea).

Foreclosures actually help the economy in several ways. First, housing is more affordable to those who have actually SAVED money to buy a home. Second, investors come in and scoop up the foreclosured homes and rent them out. Third, the rental market here is very strong (strongest in years, according to my realtor).

The real losers in this whole foreclosure phenom are the lenders (or investors who bought the packaged mortgage products backed by the imprudently-created loans). Well, that's capitalism. That's just what they deserve. But it doesn't seem to have much negative effect on the real economy, as far as I can tell, in my microcosm of the world here in Denver, Colorado.

Three other follow-up comments. First, housing starts (as measured by housing permits) were down 40% in 2006 in the Denver metro area, much worse than the national average. So, despite the worst-than-average recession in housing here, there are just a ton of jobs being created in other sectors of the economy.

Second, there is one more way that foreclosures HELP the economy. The homeowner typically fails to make 2-3 months of mortgage payments before the Sheriff shows up to boot 'em out. Living mortgage-free (and rent-free) might actually HELP consumer spending!

Finally, and quite interestingly, foreclosures create a two-tiered resale market for homes. Foreclosures are selling for about 20% less than the original selling price. But we have NOT seen other [non-stressed] homes forced down to that level. How is that possible??

1. The buyers of foreclosures are typically local, and are typically investors (or realtors). They have no "contingencies" (i.e., they don't have to sell their existing home to buy the foreclosed property) and they have the patience to wait a few months to go through the longer-than-average process of buying a foreclosure.

2. Other buyers simply can't wait. For example, a home next to mine just sold to a family from Iowa. The home sold at full-market price in a neighborhood with scores of foreclosures on the market selling for 10-15% less. If you have a contingency (e.g., the purchase is contingent upon selling your current home), then you can't buy a foreclosure--at least not here. I think most people have contingencies in their purchase agreement.

Of course, it does take longer to sell your home than it used to. And the drop-off in the "flow" of homes means that people will be living in their homes longer. That's bad news for "transactors" like realtors and mortgage brokers. But, hell, they've been making too much money over the past several years anyway!

If people who are looking to sell aren?t in fact selling their homes, aren?t they more likely to invest in their own home, via additions, landscaping, rebuilding, windows, roofing, cement work, etc.? It?s not like people who would like to move and have the means to move just sit on their cash if they can?t sell their house.