Washington Post cartoon on the leveraged Ponzi Scheme mortgage meltdown - "How Debt Bites Back"

Thanks to MC at the Post for sending this along. Click for a bigger view

Oh, it all seems so obvious now doesn't it?

Bottom line: Leverage sucks on the way down. Really, really sucks.

FLASH: Moody's forecasts 86 US housing markets will crash by over 10%, with Phoenix crashing 18% and Stockton 25%. A little conservative I'd say...

Got some bad news for idiot realtor bloggers in Phoenix and around country, and for any of the sheeple who believed the housing cheerleaders and bought a house these past couple of years:

Leverage sucks on the way down.

Also, after being in Vegas for the week, one thing stands out about the new homes they've built in the Southwest during the bubble:

Damn these garages, err, I mean homes, are butt-ugly.

Here's the down and dirty. Look out below. And watch out for falling knives.

Double digit home price drops coming

Over the next few years, more than three-quarters of the nation's housing markets will suffer some decline in home prices. Many will experience double-digit hits in a forecast that has worsened considerably in recent months.

According to an analysis conducted by Moody's Economy.com, declines will exceed 10 percent in 86 of the 379 largest housing markets. And 290 of the cities will experience price drops of 1 percent or more.

The Stockton, Calif., metro area, where Moody's predicts a 25 percent price drop, will be the hardest hit among the 100 most populated cities surveyed.

Just a tick or two behind Stockton in the Moody's survey were two Florida metro areas, Palm Bay/Melbourne (down 24.9 percent) and Sarasota/Bradenton (down 24.8 percent).

Six of the nation's 10 biggest cities face price declines of 1 percent or more with Phoenix, at a 17.8 percent loss, undergoing the worst reversal. The San Diego area will suffer through a 10.9 percent fall, Los Angeles (down 10.6 percent), New York, (down 5.3 percent), San Jose, (down 4.4 percent) and Philadelphia (down 3.1 percent) will also fall.

2005: 23 year old "leverage is the name of the game" investor and Arizona Republic poster boy. 2007: Failure, foreclosed, fraud and forgotten.

I remember reading the Arizona Republic story on this kid and deciding right about then I had to sell my place, and eventually start a blog to warn others about the housing bubble.

So it was nice to see the mea culpa piece today in the Republic on how the Arizona housing market has crashed, there's a wave of foreclosures, and at the head of the pack is the same kid they had profiled just two years ago, who is now a complete failure, and his houses are in foreclosure.

Come on folks, tell me this wasn't obvious. Even dumb realtors with blogs in Phoenix should have been smart enough to see this coming a mile away.

But of course, they weren't.

From February 2005:

Gambling on housing - Investors squeeze Valley real estate market

Zareh Tahmassebian lives in Las Vegas but has bought 15 houses in the Phoenix area since summer. The 23-year-old mortgage banker is gambling on home values continuing to climb.

Tahmassebian and a partner paid more than $2 million for their Phoenix investment properties and estimate the houses are now worth almost $3 million. They put 10 percent or less down on each house, so only about $300,000 of their own money is on the line.

"Leverage is the name of the game," he said. "Why buy one house with cash when you can buy 10 of them at 10 percent down?"

The partners plan to sell the houses in a year or two and buy more. They aren't worried about rents covering the mortgage payments because they're counting on appreciation. Plus, Tahmassebian and his partner can write off any losses and mortgage expenses.

Flash forward to today:

Foreclosures up for investors

Investors sparked the run-up in home sales and prices during the Valley's housing boom. Now, they are behind much of the area's rapid increase in foreclosures. At least one-quarter of all Phoenix-area homes to fall into foreclosure this year are owned by investors, according to an Arizona Republic analysis of residential foreclosure records. The number is rising monthly as investors, who relied on adjustable-rate or subprime mortgages to buy properties, fall behind on climbing payments.

Las Vegas mortgage broker and investor Zareh Tahmassebian is among the out-of-state buyers who started the speculator-buying boom in metro Phoenix. In 2004, he was just 23 when he and partners bought 15 houses throughout the Valley. Tahmassebian was so bullish on Arizona real estate that, in 2005, he moved from Vegas to live in one of his Valley homes in Chandler.Now, like so many others, he is losing properties.

Earlier this year, he lost his Chandler house at a foreclosure auction. He owed $490,000 on the property he bought for $464,117 in September 2005, according to public records. Some investors, like Tahmassebian, tapped equity in one house to buy another and now owe more than the home is worth. Others put so little down on homes they are just walking away from them.

Financial Times: "Spanish property boom ends in panic"

Two articles yesterday here in Europe should give those of you in the US a peek at headlines to come there... Ah, the end of a grand worldwide game of musical chairs. Textbook financial mania (always followed by the textbook panic and crash). And remember, the rush to cash can be fierce.

Pero suzanne lo investigó!!!

First this one in the Financial Times:

Spanish property boom ends in panic

Spain's overpriced property market came crashing down yesterday, with panic selling of real estate stocks signalling the end of a 10-year-old construction boom.

The sell-off dragged down related industries such as construction and banking and caused a 2.7 per cent drop in the Ibex 35 index of leading shares.

The fall also rippled through other European markets as investors worried about its knock-on effects.

And then this one in the Independent:

As Spain falters, is the world's property boom coming to an end?

Panic selling of Spanish real estate stocks this week sent shudders through property markets worldwide. As investors bet that Spain's 10-year construction boom is finally over, we take a look at global property hotspots to see who will be the next casualty.

For Brits fantasising about sipping sangria while watching the value of their Spanish holiday-home soar, the dream is over. After five years of double-digit growth, house prices rose by a relatively modest 9 per cent in 2006 and are expected to slow dramatically this year.

A constant stream of bad news has shaken foreign buyer confidence in Spanish property, while relatively high prices and competition from cheaper destinations such as Morocco and Bulgaria has drained demand. Corruption scandals linked to property deals have been rife - in Marbella, several municipal councillors are in jail awaiting trial for allegedly taking kick-backs.

"Five months later, I lose $100,000 - I don't think I can take $100,000 into the stock market and lose it faster"

Man, it's really sad to watch the end of a Ponzi Scheme. So many dream-chasers are now so screwed.

They listened to their neighbors (who thought they were rich), they listened to their REALTORs (who got paid), they listened to their mortgage brokers (who got paid), they listened to their developers (who got paid), and they listened to their "ownership society" buffoon of a president (who was too dumb to understand), and they listened to themselves (really bad move).

And now they'll be listening to bankruptcy court judges and debt counselors.

Tulips anyone? Pets.com stock anyone? South Sea shares anyone? Phoenix condos anyone? Anyone? Anyone?

The late great American housing bubble has ended. Prices are crashing (no matter what the government or NAR tell you). Inventory is skyrocketing. Lives are ruined. Millions are asking "what the hell was I thinking". And an epic Ponzi Scheme ends.

'Upside Down' Home Sellers Owe More Than They Get

Jeffrey Taylor and his wife bought their dream home in Purcellville for $538,000 last August. Now they have to sell it because they are getting divorced and neither one can afford the mortgage alone.

The most they could get for it was $430,000. After paying all the real estate commissions and taxes, they will still owe the bank $118,000.

"Five months later, I lose $100,000," Taylor, a high school teacher, said. "I don't think I can take $100,000 into the stock market and lose it faster."

The people most vulnerable are those who bought their homes within the past two or three years and now want to sell, either because of a life change or a financial problem.

Prices in some places are notably lower than they were at the peak of the market, and the costs of selling can eat up even more money.