The numbers are out. Existing homes sales fell an unexpected 7.2 percent in January. (It seems the "unexpected" happens so often that the word has lost its meaning.) Sales fell not just in places like Nevada, Florida, Arizona, and California, but in all regions of the country. The Northeast was hardest hit, as sales fell 10.9 percent. Of note, real estate prices in the often-resilient South saw the second largest fall at 7.4 percent -- slightly above the national average.
Of the sales that were made in January, 38 percent were "distressed" (up from 32 percent in December). One in every four home sales was a cash deal, which strongly suggests an investor purchase (cash deals historically account for ten percent of sales). Bottom line: "Normal" buying is not normal. Can you say "deflation"?
Contrast the above numbers to a sub-headline from the March 2010 edition of U.S. News & World Report:
"The Great Real Estate Revival: How aggressively will home values bounce back?"
In the March 2010 issue of Kiplingers Personal Finance, a reader asks, "I'm finally ready to buy a home. How much cash do I need?" The first words in the answer are, "It's a good time to buy. . ."
"…a good time to buy"? Ummm…what if prices keep falling?
"Property values collapsed along with the depression of the 1930s. Few know that many values associated with property -- such as rents -- continued to fall through most of the 1940s, even after stocks had recovered substantially.
The worst thing about real estate is its lack of liquidity during a bear market. . . In a depression, buyers just go away."
Conquer the Crash, 2nd edition (pp. 151-152)
Is a house the "surefire" investment we've been led to believe in recent decades? Do prices always rebound quickly? Is the worst over for the housing market? If you need to move soon, should you rent or buy?
Elliott Wave International offers perspective on major asset classes as we enter a new decade. We warned that the ballooning real estate bubble would burst before it was punctured.
"Lenders are certain of real estate's magical properties of continuous rise. The lending binge has gone on for so long that when it reverses, repossessions will soar. Before the crash is over, the biggest owners of real estate will be banks."
Elliott Wave Theorist, Special Report, September 2005