The rebound is just around the corner, right???

That light at the end of the tunnel??? Well my friends, that is a TRAIN!

Without going into reams of numbers, stats (stats don't lie, Statisticians do) and a history lesson, I am just going to explain with the simple Theory of Supply and Demand.

We all understand that as supply goes up, prices come down and as supply goes down prices go up. Oil has been responding to that lately, as has corn, wheat and gold.

Real Estate Supply is: Developable land and/or finished property.
Real Estate Demand is: Willing and able Buyers (both consumer and Professional).

Let's look at supply: Inventories of listed homes are approaching 1-year nationally, well above the 3-month average we saw during the boom years. Not figured in that number are a lot of the REO (Bank owned) homes that are not listed, but actively for sale. Also, National Homebuilders are only listing a few token homes per development (maybe 10% of their finished inventory) to diminish the appearance of having too much standing inventory. Homebuilders are still building new homes at a rate FASTER than they are being purchase, further bloating the standing inventory.
1) Inventory is way outpacing current demand.
2) Inventory is UNDER reported.
3) Inventory is trending HIGHER.

Let's look at Demand: We often talk of finding a "willing' and "able" Buyer. With consumer confidence at 20-year lows, many potential Buyers are just not "willing" to jump into a declining market. Those that are "willing" are often unable. The continued tightening of lending standards and rising mortgage rates have rendered many "willing" Buyers UNABLE. During the boom an abnormally high number of qualified Buyers became homeowners, effectively taking a decades worth of demand and crunching it into a few years. Stealing from future sales to close sales "today".
1) Demand is rapidly declining.
2) Those Homeowners who have defaulted will be locked out of home ownership for 7 years.
3) Many first-time Homeowners are underwater and unable to move up the housing chain.
4) New Buyers are locked out of the credit markets.
5) Builders do not want to buy new land as they cannot dispose of their current product.

We are currently in a period where Supply and Demand are quickly moving in opposite directions. In very liquid assets the price moves quickly in response. In non-liquid assets, such as Real Estate, it takes much longer for the price shifts to show up in the national numbers. We are at the onset of a long and protracted decrease in Real Estate values.