Wondering why Hovnanian Enterprises (NYSE:HOV) ran a headline-grabbing, $100,000-off, McMansion fire sale?

The answer's simple: The race is on to dump houses before things get worse. And get worse they shall. Today, RealtyTrac reported a small -- by which I mean huge -- 115% year-over-year increase in foreclosure activity for August. That's an incredible 36% jump from July.

With all those homes hitting the market, and readjusting ARMs bringing another flood over the next few months, it's liquidation time. I'm trying to remember my Econ 101 again here ... can someone help me out? What is it that happens to prices when there's a flood of supply and dwindling demand?

Expect to see the same desperate maneuver from Pulte Homes (NYSE:PHM), Toll Brothers (NYSE:TOL), Ryland Group (NYSE:RYL), Centex (NYSE:CTX), D.R. Horton (NYSE:DHI), Lennar (NYSE:LEN), and the rest of the crew that spent the past half-decade overbuilding for a world of cheap money, bad loans, and greedy flippers. In places where the speculating was worst, such as Nevada and California, foreclosure filings tripled and quadrupled from August 2006.

Ben Bernanke and the Fed policy gurus can cut rates all they want, but it won't reinflate this bubble. Everyone's rushing to avoid being the last one out the door. It's time for the entire industry to reap what it's sown.

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At the time of publication, Seth Jayson, a top-10 CAPS player, had no positions in any other company mentioned here. See his latest CAPS blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.