Housing Sales

The past two days showed a marked acceleration in the decline in home sales. Since a year ago, existing home sales are down 12.6% and new home sales are down 21.6%. On top of this, inventory has increased from a 5 month supply earlier this year to a 7.3 month supply (existing homes). The housing market numbers are now in a reflexive downward cycle. For example, if housing sales drop another 4.3% next month, the supply will jump by 8.5% (for existing homes). See Commerce Department press release. The collapse is starting to gather steam, and in about 6 months will become an avalanche.

May I remind you that in 1991, sales declines preceeded price declines by 12 months.

Since 2003, median prices have risen by 29%, but inventories are up 70% and sales are about even, according to NAR data. Sales (seasonally adjusted) have dropped eight of ten and four straight months. The supply and sales numbers are diverging, which means that they will get much worse very quickly. It seems to me that none of the analysts out there realize this. Nearly twenty years after George Soros' revealed his ingenius Theory of Reflexivity, the market has still not learned this lesson.

The thing that surprises me is that there's more "word on the street" about a housing crash, than in the normally sensational media. Well, now is the time to position investments for the coming implosion in housing. I see a 20-30% price decline nationwide over the next 2-3 years. It seems to me that the analysts haven't realized that the market peaked at the end of last year. Well, they won't notice the drop until it's halfway down. The question is, how do we use this institutional sentiment to our advantage? In my case, I will patiently wait for a chance to buy a house for a ridiculous bargain.