Whileoverallsalesdidrise5。

3%fromAugust(thebiggestone-monthgainsinceMarch),itcameafterthreestraightmonthsoffallingsales。

Andnewsthatpricesarefallingisthelatestpieceofevidencethatsuggeststhemarketisgettingtappedout。

The$217,100figureisthelowestmedianpriceforanewhomesinceSeptember2004。

ButIvegotnewsforyou:ThespeedwithwhichUShousepriceswillfallin2007willdwarfthatofthisyear。

Hereswhy



Firstofall,thereisanoversupplyofhomesonthemarket?

Second,buildershavenotyetfinishedprojectsthatwerebegunsixmonthsagowhenallwasrosy?

Third,sellersarestillwishingandhopingtheycanselltheirhousestotherightbuyerfortherightpricenextweek。

JustliketheNasdaqcollapseearlierthisdecade,homeownersarepronetooverlyoptimisticprojectedoutcomesintheirpersonalsituation。

Bythistimenextyear,homepricesinplaceslikeNevada,California,FloridaandArizonamaynotdecline5%astheexpertsaresayingtheycouldfalltwiceorthreetimesthatnumber。

Overall,wemaynotseeafull-blowncrashinhousingprices,butafallof20%to40%fromthehighsinmanyareaswillbethenorm,nottheexception。

Thatsbecauserightnow,sellersarentselling。

TheyreindenialstillwaitingforSantatodelivertheiraskingpriceorclosetoit。

Butwhenhomeownersfinallyadjusttothepricesthatreflectthemarketplacereality,boltthedoorbecausepriceswillfalllikedominos。

Myadvice:Takethefirstreasonableofferandcountyourselflucky。

Forexample,mycontractorissellinghishouse。

Hetoldmesixmonthsagothatitwasonthemarket。

Sincethen,hesonlyhadoneoffer$5,000lessthanhisaskingprice。

Hesaidhedwaititout。

Giventhemarket,Imentionedthatheshouldsellatthelowerprice。

Hedeclined。

Thehouseremainsonthemarketandprobablywillbeforsometimeyet。

Inthemeantime,hellhavespentatoninmortgageinterest,maintenance,insuranceandtaxes。

MultiplythatguybyseveralmillionandthefutureofU。

S。

realestatelooksominous。

TheMarketsFalling,SoWhyIsGreenspanUpbeat?

SoimaginemysurprisewhenIheardAlanGreenspanrecentlydeclarethatthehousingmarkethasseenitsdarkestdays。

IwonderiftheformerFedmaestrohasfallenpreytothesameill-conceivedthinkingthatissopervasiveonWallStreet?

Afterall,itwasonlyrecentlythatanumberofmajorinvestmentfirmsbreathlesslyupgradedhomebuildingstocksonlytoreporttheverynextweekthattheysawdisasteraheadinthehousingmarket。

TakeD。

R。

Horton,forexample。

ThisisoneofAmericashealthiesthomebuildersaverywellmanagedcompany,withastellarbalancesheet。

Yetrecently,itsaid:Thecompanyscancellationrate(homescancelleddividedbygrosshomessold)forthefourthquarterof2006was40%。

Thatmeansalmosthalfofallpotentialbuyersbackedout。

ButIdontneedtoseeD。

R。

Hortonsnumbers。

IcanjustlookdownthestreetandseeaForSalesignoneveryotherhouse。

TheForSaleSignsAreEverywhereSoWhyAreHomebuildersStillBuilding?

Ivealwayswonderedwhoownsallthesehousesonsale。

NobodyIknowhasmorethanonehouse,unlesstheybuyandsellhomesasinvestments。

Butthathasntstoppedhomebuildersconstructinganinexplicablenumberofnewhomes,ontopofapartmentsbeingconvertedintocondos。

Earlierthismonth,theCensusBureaureportedthathousingstartsunexpectedlyincreased。

IfearthissituationiseerilysimilartotheNasdaqslumpin2000。

Backthen,theregularguygotsuckedintoamarketoflow-floatNasdaqsmallcaps,hypedupbyirresponsibleinvestmentbankswhowantedquickhitsfromIPOs。

Result?

Theregularguysendedupgettingkilled。

Andnow,thelureofquickprofitsissuckingsomepeopleinagain。

AndtheyrequicktofallforirresponsiblecommentsfrompeoplelikeGreenspan,theCommerceDepartment,theHousingLobby,andrealtycompanies。

IrrationalExuberanceRevisited

Rememberirrationalexuberance?

ThiswasarguablyAlanGreenspansmostfamousspeech。

Ifyoudlistenedtohimbackthen,youdhavemissedoutonhugegainsinthemarket。

Why?

BecauseGreenspanhasanimpeccablehistoryofbeingcorrectbutevenmoreimpressiveishisabilitytoberighttooearly。

Hegotitrightbutatthewrongtime。

Itwastwoyearslaterthatthemarketcrashed。

Wheninterestrateshoveredaround3%,Greenspanneversuggestedlockinginafixed-ratemortgageandnotspeculating。

Nope。

Instead,hesaidadjustableratemortgagesmakesense。

Result?

Withmortgagerateshavingrisenthroughoutthesummer,researchgroupFirstAmericanRealEstateSolutionspredictsthatinterestrateswillriseonabout$300billioninadjustable-ratemortgagesthisyearalone。

Thatfigureisprojectedtojumptomorethan$1trillionineachofthenexttwoyears。

Thatmeansanincreasingnumberofhomeownerscouldseetheirmonthlypaymentsmorethandouble,failtomeetthem,andfileforbankruptcy。

Soignorethosetryingtomakeitseemthattheworstisoverforhousing。

Whilehomebuildersstocksmightbebottomingatthemomentandrepresentdeadinvestmentmoneyforawhile,housepricesarentbottomingjustyet。

Bottomline:Thehousingbustisnottodaysnews。

Itsgoingtobetomorrows。

IthinkwereabouttwoyearsawayfromtheseeingthebottomintheUShousingmarket。

ByKarimRahemtulla,Chairman,Mt。

VernonResearchfortheSmartOptionsReport,www。

smartoptionsreport。

com

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