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US Foreclosures Once Again Set Records

May 22, 2008
U.S. home foreclosure filings set a new record high in April, 2008, increasing by 65% over the previous year and placing municipalities at risk by cutting into the value of taxed property on their tax roles. The U.S. Foreclosure Market Report was released on May 14,2008 by RealtyTrac, an online marketplace that tracks foreclosed properties.

There are still quite a few optimists about who seem to think that the worse of the financial crisis is over. This would include US Secretary of the Treasury, Hank Paulson. Current data suggests otherwise and that foreclosures will continue to increase over the next year to 18 months. It is hard to see the US economy doing well when massive numbers of foreclosures are dragging down the value of the entire US housing market.

Municipalities in the hardest hit states like California, Nevada, and Florida are having their revenues drastically cut as tax revenues plummet. Foreclosed properties reduce the value of taxed properties. Plunging home values reduce the money that cities, villages and towns collect in property taxes and is causing yet another financial crisis.

The April foreclosure rate is "the highest monthly total we've seen since we began issuing the report in January 2005," said chief executive James J. Saccacio in a statement. "The city council in Vallejo, California, part of a metropolitan area with a foreclosure rate that ranked sixth highest in the nation in April, voted last week to have the city file for bankruptcy," said Saccacio.

The gross over extension of mortgage debt, credit card debt, and business debt, that has occurred over the past twenty five years, is not going to be corrected overnight. As debt is deleveraged the consequences of the real estate bubble popping are going to be with us for a very long time.

The stock market has held up well so far due only to the tremendous injection of liquidity into the banking and stock brokerage system by the Federal Reserve Bank. As a result stock market investors have not faced up to the reality that housing market conditions continue to deteriorate and so far think that the mortgage crisis will be short lived.

This rosy perception is likely to be reexamined and discarded as the foreclosure rate continues at high levels. As real estate values continue to plunge banks are going to come under increasing pressure. It seems to me that using current stock market rallies to sell stocks is the most prudent course of action.

When it comes to real estate investing and bottom picking of selected properties the best values are probably yet to come. Housing prices are likely to fall even further over the next year or two. So far in 2008 , according to the National Board of Realtors (trademark), housing prices have declined by 7.7%.

The important thing to keep in mind is that this is not an ordinary economic slow down or recessionary period. The over extension of credit, high debt levels, and the misallocation of capital, build up over many years. The correction will probably be long and severe.

The fact that the Fed actions of pumping even more credit into a system that is ill because of too much easy credit is not reassuring. The Fed's actions so far are largely responsible for yet another bubble in commodities. There will be unintended tragic consequences as a result of the recent Fed's fat cat rescue efforts.

The commodity bubble may be the most dangerous bubble of them all as excess liquidity is helping to send prices for stable commodities like wheat, corn, soybeans, and rice to record levels. Food riots are already breaking out around the world as billions of poor people are being priced out of being able to eat at adequate levels. Even in the United States centers which assist low income people with food supplies are trying to cope with nearly bare warehouses.

While the Fed may have calmed the waters in the fat cat banking and stock brokerage communities it may have set the stage for violent conditions and food riots that will bring down governments across the world.

As additional foreclosures take place the additional financial strains placed upon the international banking system may cause the Fed and other central banks to keep inflating the money supply at rates leading to hyperinflation. This would cause even higher prices for commodities than we are presently experiencing, reinforcing a vicious feedback loop.

The resulting food price inflation would be hugely destabilizing. When a large number of a countries population is starving anything can happen. A great deal more trouble for the world's financial and political systems is almost certainly on the way.
About the Author
Gerald "Taipan" Greene is a retired forex trader and portfolio manager who worked in Asia for over 20 years. The nickname was acquired in Hong Kong and is now used for a number of financial, political, and Internet business related blogs. One of them is at Home Loan Services
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