US Foreclosures Rise 53% in June, Doomsday Predictions Come out of the Woodwork

Foreclosure filings rose 53% in June from a year earlier and repossessions almost tripled, according to RealtyTrac.  Nevada retained its title as the Foreclosure Capital of America with one in every 122 households in some stage of foreclosure, more than four times the national average.  California and Florida came in second and third respectively.  California had seven of the 10 US metro areas with the highest rates, including the top three: Stockton, Merced, and Modesto.  

Needless to say, this data should help clear up any confusion over whether housing has bottomed.  It hasn't.  Foreclosures continue to rise, putting further pressure on prices which leads to homeowners walking away.  Banks repossess properties, sell them at a loss, forcing them to write down the value of their assets.  Banks are leveraged, so the write-down of assets necessitates a search for new capital which dilutes their existing shareholders and causes equity values to decline.  The vicious cycle continues until home prices reach an equilibrium point where buyers return to the market because houses look fairly valued.  The question investors have to ask themselves is: How many homebuilders, banks, lenders, and mortgage REIT's will go bust before we reach that equilibrium point?  In any major pricing correction, the highly leveraged players are always the first to go, unless of course they have an implied government guarantee, in which case they may be the last to go, but they will still go.  We've already witnessed most of the subprime lenders go belly-up followed by several hedge funds, a major investment bank, and a few Alt-A lenders.  But we're not done yet.  If you don't believe me, maybe you'll listen to a few sources with more credibility.  Former St. Louis Federal Reserve President William Poole believes that Fannie and Freddie are insolvent.  Coincidentally (or maybe not) credit default swaps widened again on Fannie and Freddie's debt this morning to levels not seen since March.  This on the heels of a serious bludgeoning of the stocks in yesterday's market meltdown.  Even the Wall Street Journal reported that the Bush administration is preparing a contingency plan in the event that the companies falter according to three people familiar with the matter.  The President was so desperate to appear as if he was up on the matter that he forced three sources to leak the news!  He may have even been heard saying "Can we out a few CIA operatives?  Maybe go to Defcon 9?  Orange Alert?  Do you think that would help the uh...situation?" before Paulson steered him back in the right direction.  In any event, the government is on alert.  Maybe we'll all get another $600 in the mail in a few months.  If you were too rich to get one last quarter, chances are you might be poor enough this time around.