Alan Reynolds of the New York Post has an insightful look into the Foreclosure Five, meaning the five states most responsible for the housing market's broad decline. Nevada, California, Arizona, Florida and Michigan make up the list, with the only real surprise being Michigan. It would seem that Michigan's high foreclosure rate is due more to the unemployment rate there, and less to falling home values, while in the other four states the falling values are clearly the major problem.

The author also mentions a study that points out that the housing markets of Phoenix and Vegas are closely tied to Los Angeles, in effect almost creating one whole sub-market that is inter-dependent, mainly because these are often second homes for Californians . I would guess that has to be a major factor in the plummeting values in Florida as well. To so many with half a million or more to invest, why not buy a second home in a desirable market? Unfortunately, they are guilty of making the same mistake as Bernie Madoff's investors: looking at the astronomically rising prices (and ultimately rates of return) and expecting it to go on forever.

However, all is not as bleak as it seems. While California's median home price has fallen approximately 20 percent, the overall value of the homes is still up 50 percent over five years. And foreclosure rates seem to be leveling off in these areas as well, perhaps indicating that the worst is over, at least for the affluent four states.

The state of Michigan is another concern entirely, with rising unemployment there, and the prospect of many thousands more in the auto industry losing their jobs, the trend of steady foreclosures could continue there for quite some time. While it is hard to get worked up over rich suburbanites that over-extended on a $750,000 house (especially a vacation home!), those who can't make their regular payments on a $150,000 house because both parents have lost jobs truly is a national tragedy. But how does the government decide who is "worthy" of mortgage assistance, and who must be foreclosed upon? That is a question for the politicians to decide. The same politicians whose financial policies and mismanagement, from both parties, has only made the housing market contraction substantially worse than it ever would have been without their blatant market interference, primarily through the aegis of Fannie Mae and Freddie Mac.

Thanks to Instapundit for the initial story, which is definitely worth reading.