My family and I were lucky.
We put our house on the market about a year and a half ago, and the first family who came out to see it decided to buy. Our home was on the market for less than a week and sold at 97 percent of my asking price.
I thought I was a little late to sell -- that the time had passed to get the maximum return. But the family from India loved the place, and by the way, mainly paid cash. The man I had bought the house from had moved into a very upscale neighborhood just down the road. My former neighbor told me this guy also had investments in other houses. I view that as a microcosm of the mind-set toward the residential real estate market at the peak.
And now this from Reuters (11/30):
"Prices of single-family homes in September fell more than twice as fast as expected from the prior month...
"'Housing is in big trouble. Excess inventories remain a big problem,' said Gary Shilling, President of A. Gary Shilling & Co...
"Shilling expects another 20 percent drop in home prices.
"'As prices go down, more people get underwater, leading people to walk away,' leading to more write-downs by the banks, Shilling said. 'That will be Act II in the whole drama of the housing collapse.'"
Subscribers to The Elliott Wave Financial Forecast received plenty of advance warning about the trend in residential real estate prices. This is from the September 2005 issue:
"There are many reasons to believe that a bear market in real estate has, in fact, just begun, including the latest reading on that chart of bank mortgage holdings. At 61%, bank mortgage holdings touched a Fibonacci point of likely reversal. Another factor is the action in the EWI Sub-Prime Lenders Index, which the March issue of EWFF identified as the 'front edge' of the great financial bubble. After completing five waves up at three degrees of trend in January, the index declined in five waves, sputtered higher in a countertrend bounce and reversed in what should be a powerful decline to much lower levels. The homebuilders have also joined in with a five-wave decline of their own. The decline’s break of the exponential curve formed by its near vertical rise is a powerful sign that a long, hard fall is starting."
In places like New York City and San Francisco, stalled and declining housing prices have the affluent taking a "wait and see" approach:
"In Manhattan the demand for high-end rentals has never been hotter. In the third quarter of 2010 there were 200 new leases signed for rentals charging $10,000 a month and up, more than double the 89 leases signed the year before... the increased demand for luxury rentals shows that more would-be buyers are concerned and taking the 'wait and see approach.'
"The demand is also being seen in Marin County, right across the Golden Gate Bridge from San Francisco."
CNBC, Nov. 26
EWI's Robert Prechter wrote about the psychology which attends falling real estate prices in Conquer the Crash, 2nd edition, p. 152:
"'Well, gee, property prices have been coming down. Why should I rush? I'll wait till they come down further." The further they come down, the more the buyer wants to wait. It's a downward spiral."
Houses are just one of many assets that skyrocketed during The Great Asset Mania. Our analysis suggests that the "downward spiral" has much further to fall.
EWI's Robert Prechter recently published his November Elliott Wave Theorist. In that issue you'll discover the difference between what followed the 2007 stock market top, vs. what is now unfolding after the April 2010 stock market top. This analysis alone is worth taking advantage of your risk-free read of the Theorist.