Reuters Writes: Home sales fall as prices rise

WASHINGTON (Reuters) – U.S. home resales fell in October to their lowest since June due to an inventory shortage and high property prices that have dampened buying power.

The National Association of Realtors said on Wednesday that sales of previously owned homes fell 3.2 percent last month to an annual rate of 5.12 million units.

Economists polled by Reuters had expected sales to drop to a 5.13 million unit pace in October.

At the same time, the median price rose 12.8 percent in October from a year ago to $199,500. It was the 11th straight month of double-digit gains, and up from last month.

Real Estate fundamentals continue to deteriorate.  Over a month ago I went out on a limb and called for the real estate market top.  Here is that post and reasoning  I Am Calling For A Real Estate Top Here  Even though the price is still increasing in certain markets (as I have predicted), I continue to stand by my forecast.

So, what is the future of housing? To understand what’s coming we must first understand overall macroeconomic picture.  Most importantly we must understand that….

A. Historically speaking the real estate market is still in a massive bubble driven by cheap credit. There is no reason for housing prices to be at this level. As my earlier valuation work showed a 50% haircut from today’s levels would bring the prices into the “normal range” of where they should be.

B. I know that many people will disagree, but your house is not an investment. It is the place you live. It could be an investment if you view it as a business and generate positive cash flow and ROI from your rental. However, that is next to impossible with today’s market prices.  Essentially buying today (or over the last few years) is a speculation where you bet on asset appreciation Vs. positive cash flow.  That is a huge difference.

C. The stock market and the economy will tank starting in 2014. The bear market leg will go into 2017. My mathematical timing work clearly shows that. It is now unavoidable. In such a case housing will experience its 3rd leg down.  Typically, 3rd legs are much harsher than the first decline. The bottom line is, I wouldn’t be at all surprised to see a 30-50% haircut from today’s prices.

Taking an even longer view, eventually we must get to a point where real estate is not viewed as an investment. Where people feel discussed by the housing market. That will be the bottom. Today we are on the opposite side of that view. 

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