The bottomless Housing market

New home sales fell 'unexpectedly'. The market has reacted by dropping sharply. I hardly believe the fall in new home sales was unexpected. The housing market is in a recession. Anyone who believes that housing has bottomed obviously has their head up their bottom (ass). We will not get a housing bottom till the current 8 month supply of homes gets down to below 4 months. In other words, atleast half the homes for sale on the market need to get sold. The problem we are having in housing is 4 fold. First, there is a huge glut of inventory which in part was caused by the excess speculation in housing. Secondly, less and less buyers can actually qualify for a mortgage due to tighter lending practices. Thirdly, there are less people actually interested in buying homes than ever before. Speculators i.e flippers are out because houses are not appreciating. First time buyers are out because prices are still too high. Other buyers are out because they are scared of a housing market crash and prefer to sit and wait it out. Lastly, builders who are sitting on cheap land which they purchased before the boom are still building because they want to squeeze every last drop of profit. These 'greedy' builders are only adding to the inventory problem.

The market appears to be gradually slipping away from the grasps of the bulls. The Nasdaq has failed to close at new new highs since November 24 which is over 6 weeks. While the Dow did close at new highs the week before New Years it was on very light volume.The S&P has failed to make new highs since mid December and appears to be topping. In these 3 indices there has been a noticable lack of volume on up swings while a surge of volume accompanies most down swings. To me the first trading day of the year was the most telling with the Dow advancing upwards to 12630 a gain of almost 170 points for the day before reversing, going negative for a while and than finally rallying enough to close up 13 points. The huge volume that day indicates that this could likely have been the peak of the current bull market.