My neighbor has had his beach condo on the market for two months. They have not had one nibble. Why? Most consumers have been priced out of the market. In fact, consumers are cancelling their orders for new homes as we speak.

Now don't get too eager to begin buying, the decline is just now getting under way. In May 2005, I wrote:

May 14, 2005

market hasn’t been any fun, has it? Why don’t we stop frustrating ourselves and invest in real estate instead. Gee, everyone’s making money in real estate. I’m sure you have heard more than 1 person over the past month brag about the killing they’re making in real estate. The last time I heard this kind of bragging was during the 1999 NASDAQ bubble. This is very alarming.

Today, consumers are leveraged to the hilt by high credit card balances, home equity loans, second mortgages and home mortgages. In fact, the nonchalant attitudes and financial decay we are witnessing today can be likened to the same attitudes of investors during the roaring twenties. Of course, the stock market crash of 1929 was similar in many ways to the NASDAQ crash a few years ago. Like 1929, buying on margin allowed average investors (gamblers) to buy more stock than they could afford to lose.

In the same respect, many real estate investors (gamblers) are pledging 20% letters of credit toward real estate that they have no intentions of closing on. If interest rates spiked and real estate prices began to plunge, real estate speculators would go belly up, and banks would be stuck with massive amounts of inflated real estate.

So, what does that have to do with us? You’re right; we’re not dumb enough to get ourselves involved in another over inflated bubble, are we? No way! Once is enough. The reason I make reference to real estate is our lovable Fed chief is determined to squash inflation, and almost every inflationary pressure we are witnessing is coming from higher commodity prices. If the demand for housing can be slowed, commodity prices would decline, and inflation fears would subside.