This is a story by Bill Fleckstein, in MSN today. I have been saying it for quite some time now that the obvious reasons for foreclosure - divorce, substance abuse, loss of jobs, death in the family - are nothing compared to the contribution of people buying houses using interest only loans with absolutely no equity. Unless you live in a certified HOT market like Vegas, Arizona or Florida where prices have decided to take an upward swing for quite some time now - these loans have to affect the number of foreclosures coming into the market. It is greed by banks to lend money at insane programs that is pushing these foreclosures high. This is just the beginning. Smart real estate investors are all watching and negotiating harder than ever and getting good deals. The deal is a plenty, now and in the coming years.

Do I feel extremely sorry for these folks - yes I do! Do I feel sorry for these banks who are losing money on these homes? Not at all - the REO market continues to grow. I told somebody that I never thought that I would the see the number of suburban foreclosures this high five years even three years ago. Astonishing how fast thing is spiraling out of control. There is money to be made, right now.

Empty houses, falling prices: A boom dies

You can see how the housing bubble is bursting in places like Columbus, Ohio, where builders and lenders threw common sense away and enticed people to buy homes they couldn't afford.

Regular readers know that since early 2004, I have described the housing ATM as what's allowed the economy to move forward. In June, I suggested that Time magazine's cover story, "Home Sweet Home: Why We're Going Gaga Over Real Estate," might be signaling the peak.

It's looking more and more like June was the peak (witness last week's disappointing new-home sales, pre-Katrina), as various problems begin to surface around the country.

To some degree, the housing market is a compendium of local markets, unlike the "centrally located" though all-encompassing stock market bubble. There is no Nasdaq or Dow Jones housing index. For that reason, as the housing bubble unwinds, it won't be quite so obvious to folks around the country unless it's happening in their community.

Home-style seduction
Turning to one such place, I am indebted to a reader of my daily column, who forwarded a copy of the Sept. 19 Columbus Dispatch. It ran a thorough article on the plight of a couple in the Galloway Ridge subdivision in suburban Columbus and also shed light on some financing techniques that get folks into trouble.

The article, "Suburban Blight," singled out Dominion Homes (DHOM, news, msgs) for enticing people to reach too far. Allow me to share a few quotes:Start investing with $100.
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"Big dreams filled Rick and Christy Alonso when they bought their new house from Dominion Homes. Start a family. Build equity. Move to a larger house. But six months later, their suburban neighborhood on the Far West Side began to deteriorate. New houses suddenly emptied. Thistles and dandelions overran lawns. Neon orange labels appeared in windows, signaling foreclosures."

Buy now, foreclose later
It's worth making a point here: On average, people across the country have a good deal of equity in their houses. But I think that average is misleading. There are people with huge amounts of equity, and there are people with virtually no equity. It's the people with no equity (otherwise known as "marginal buyers") who find themselves in trouble, wind up "upside-down," and are forced to sell.

It's those marginal sellers who start the price dislocation (after the supply of marginal buyers has been exhausted). The story Ohio describes this process: "Foreclosures damage entire neighborhoods. They affect families such as the Alonsos, homeowners who pay their mortgages on time, yet find themselves stuck with houses losing value."

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