We saw a “green shoot” in US home prices in the last week of July. Good! We should be seeing green shoots now – ASAP – because housing has lost 33% of its value in the past 3 years and needs to stop tanking to stem the burgeoning foreclosure rate (which is likely to peak in 1Q or 2Q 2010 at the earliest). Plus – we’re in summer! This is always the peak of the annual residential real estate sales cycle. Housing sales will resume their downward spiral this fall & winter – as they contract every fall/winter. Hopefully it will be a shallow fall-off or our economy is going to get really ugly (welcome back S&P500 at 666).

Also note that banks are sitting on piles of inventory of foreclosed homes. This seems to escape the financial media reporting. Banks are patiently keeping their inventory out of circulation and slowly introducing homes in order to keep the inventory of unsold homes at levels that will stop prices from sliding further. There are 130 million housing dwellings in the US. 18 million are empty. It will take years (not months) for banks to unload their inventory of foreclosed homes. FYI: if you were considering a 2nd house or larger house, next year ought to present some fire sales, but I don’t know where mortgage rates will be. The government will do everything in its power to keep rates low so the housing inventory can be unloaded. This will rely on foreigners continuing to buy a record amount of US bonds – at the same time US Treasuries will be competing with record amounts of Euro bond sales. (see a problem for AAA corp bonds here? Companies are going to have to raise their bond rates to attract buyers. This in turn compresses earnings, reducing stock prices).