It’s important for buyers and investors who are interested in the foreclosures market to carefully evaluate local market conditions before diving into foreclosures in any given area. Our analysis of nationwide foreclosure property sales in the last seven months shows that while some areas of the country documented a plethora of properties in foreclosure and big savings on foreclosure purchases, other areas reported relatively low foreclosure inventories and smaller average savings on foreclosure purchases.

Foreclosure markets most favorable to buyers and investors
According to data from the RealtyTrac database, homebuyers and investors realized average savings over the past seven months of more than 40 percent on foreclosure purchases in Ohio and average savings of more than 30 percent on foreclosure purchases in Indiana, Tennessee, Georgia and Texas. Those types of bargains are well within the parameters of what most experienced investors consider a sound investment, even in areas where home value appreciation is relatively slow.

All five of the states with foreclosure markets most favorable to buyers and investors reported annual foreclosure rates of more than 1 percent of total households along with increasing foreclosures in 2005. In addition, the low average sales price of foreclosures in these states makes it easier to purchase a foreclosure property — especially at foreclosure auctions, where the full amount in cash is sometimes required.

Foreclosure markets requiring persistence and savvy
In other states, deep discounts on foreclosure properties were harder to find. For example, the average savings on a foreclosure property in California was less than 20 percent. While that’s still a significant savings, the state’s booming property value appreciation rates mean a buyer still needs to invest a substantial amount of money — $412,811 was the average sales price for a foreclosure property in the state. And foreclosure rates in California, New York and Washington were well below the national average, meaning that relatively few foreclosure properties were available to interested buyers and investors.

Still, there were some pockets within these states where buyers and investors found great bargains. For example, foreclosures in Monroe County (Rochester), New York sold for an average price of $59,591 — 47.82 percent of market value.

View charts of best and worst state foreclosure markets.

Let us know about where you've found the best deals with foreclosures.