Real estate prices set to fall farther... Houses, then cars, then credit cards... The latest data on housing is very unpleasant... At the end of the first quarter, nearly 4.4% of the mortgages in the United States were in default, up from less than 4% at the end of last year and up from 2.9% a year ago. Worse, these defaults are concentrated in a few markets, including Puerto Rico (8%), Florida (7%), and Nevada (6.5%).
Defaults are the first stage of the foreclosure process. Rising defaults indicate that foreclosure rates will continue to increase. (The foreclosure rate jumped to 1.39% from 0.58% a year ago.) There is a strong negative correlation between foreclosure rates and recovery values. The more property that must be auctioned, the lower the prices.

According to Moody's, 8.8 million borrowers have mortgages that exceed the value of their homes. As real estate prices fall, the number of these "upside down" borrowers will increase to more than 10 million by the end of next quarter. More and more of these people will simply walk away from their homes, which will continue the cascade of falling home prices.

I wouldn't be surprised to see the average price of a home in the United States fall by 20%-40% before we hit bottom. Most people consider this outcome impossible, but prices have already fallen that much in the worst-hit markets.

Looking at the credit data, it seems people have begun to stop paying their bills in order, from most expensive to least. Houses came first – that's the most expensive bill. Autos came second. (The largest independent auto-finance company lost $300 million last year on its $25 billion auto loan portfolio as defaults rose higher than 7%). What will be next? Credit cards.

Even though the interest rates are sky high on credit-card debt, the minimum payments are small, which is allowing people to keep borrowing. At least for now.

Equifax (a leading credit bureau) reports total credit-card balances increased 8.1% in the first quarter of this year – more than double the previous average rate of growth. Naturally, the steepest increases in credit-card borrowing occurred in the same states where the mortgage crisis is the worst. Credit-card balances rose nearly 15% in the first quarter in California and Florida and more than 20% in Nevada.

Like drug addicts, consumers cannot survive without more and more credit, and they're now turning to the most expensive and unreliable source. They will soon hit bottom.

Now remember the Market antisipates these events 6 months early and the Fed has been doing everything it can to tsave the economy from going into a deep recession or depression. But if a person can't pay his credit cards or mortgage they go bankrupt and the hoouses go up for auction. The Fed is just making sure the banks don't collapse like they did iin 1930 which caused the great depression.

So start looking for bargains as the homebuilders and mortgage companies start to go bankrupt.
The best way is buy KRE and get a 10% yield on your money as you wait for the bottom to be processed. Or if you don't want to loss any money put it in cash at 2.5% and wait for the risks to pass buy then buy KRE. You will pay a higher price then but won't have the risk either.