A lot happened in the world this weekend. The economy is continuing its dance and it’s having some serious ramifications on us investors. The economic reports can be a little confusing, so I’m going to break it down a little. Here are some reasons why we can expect to see foreclosures and Short Sales remain at high levels well into the future.

 While the sub-prime disaster is finally cooling off, this is just a brief respite. The crisis in ARMs and even the prime market is just beginning. Investors should concentrate on finding ARM mortgage holders who are just seeing their loans readjust upwards, and get in front of this market now. Many of these loans will soon fail, just like the sub-prime loans. Because of the dramatic fall in home values in most markets, those faced with loan resets will not be able to refinance, even with the fairly generous terms of the Make Home Affordable program.

 In areas that have been hit with high unemployment (we just added another half million people to that the unemployment pool in June alone!), especially in the financial and automotive sectors, layoffs will include many managers and executives with prime mortgages. Expect many of these properties to start coming on the market also as Short Sales.

 The second problem on the horizon is that many cities are facing millions of dollars in lost tax revenue and are beginning to cut back on services and staff. There will be a new wave of layoffs starting July 2009 among government workers in many communities, and that will hit middle class neighborhoods hard as mortgages begin to fail among these laid off government workers.

 Towns like Vallejo, CA are even filing for bankruptcy. Faced with plunging tax revenues and spiraling unemployment and pension obligations, cities are beginning to default on their municipal bonds. Lower ratings and bankruptcy filings lower property values and lead to even more short sale potential in whole communities. Communities like Youngstown, Ohio and Detroit and Flint, Michigan that have been devastated with the failure of the American automotive industry can expect it to take at least until 2012 before there is any significant turnaround in the economy.

 The third wave that will trigger more short sales is in the commercial real estate market. As businesses fail leased space becomes vacant. Owners will find these spots hard to fill, since it is still difficult for start-ups to get financing, or for current businesses to expand. Owners who are finding it difficult to refinance or get business loans are either responding by failing to make needed repairs on property, or are defaulting on commercial property. Tenants are beginning to complain to courts and tenants’ associations about long neglected buildings. Tenants are also often forced to move abruptly as properties they are renting or leasing go into foreclosure.

 The economy is so fragile right now that any bit of bad news can put it further out of whack. The 467,000 jobs lost last month certainly didn’t help. What that means for the responsible real estate investor is that we can turn disaster into an opportunity. We can help to heal the economy just a little faster by getting non-performing property off the market and back into the hands of Buyers who will, in most cases, be able to keep up with new, lower mortgage payments, insurance and taxes. Over time the housing market will get back to normal, but not, unfortunately, any time soon.