Good evening – it is Tuesday, July 25, 2006. The war rages on in the middle east. Some say it is the beginning of World War III. Others say that one began with 9-11. We ask, does it make a difference? People are getting killed because of disputes that no internationally brokered cease-fire can solve permanently.

 It is often said that war does not solve anything. While we deplore war, we disagree with the statement. When war is forced upon a nation, as it has been forced upon Israel, is there any choice but to fight it? War does solve things. If you doubt it, what can you say about the American War for Independence?  We do know a few who say that it should have never been fought, that we should have stayed with England. But they have few converts to their narrow worldview.

We claim no special knowledge of the details of the current conflict in Israel and Lebanon. But from what we do know, we wish Israel well. The time may have come for Israel to inflict enough pain upon those who want to destroy it that they will cease and desist. If that means eliminating them, it needs to be done.

In a new Special Report tonight, we look at the rapidly weakening real estate market in the US. In fact, it is not just happening here, but in all nations controlled by inflating central banks. Now that they are allowing interest rates to rise, the inevitable consequence is occurring: softening real estate markets. We think it is just getting started. We’ve had the longest, most inflated rising real estate market in living memory. In a March Tuesday Reports piece, we pointed to preliminary indicators that suggested the market was weakening. Some new stats are in – and they are not good.

Have a good week,

Dave

July 25, 2006

How Goes Home Buying and Selling?

For most of our nearly 32 year married life,  your editor and his wife have been homeowners.  As is the case for most in this country, our home was our biggest single investment. Not any more. In late 2003, we became convinced that most homes were vastly over valued. We became “homeless” in that we sold our home and rented. We were convinced that the rapidly rising values of homes constituted a real estate “bubble” which surely would deflate soon.

True confession requires an admission that we were wrong. In retrospect, we should have held on to our home another year. In fact the people that bought it sold it 14 months later for $50,000 (about 17%) more than we got from them. Not a bad return.

Timing errors, aside, we are still convinced that we are in a real estate bubble. The over-blown market is getting very long in the tooth now, however.  All over the country, we see signs that the real estate market is changing.

Not surprisingly, in a rising market, most are very aware of what their homes are worth. For many, the rising dollar value of their home is the family savings account, retirement account and rainy-day fund, all rolled into one.  What many do not yet realize is that their asset valuation has two very fundamental flaws: (1) it is highly illiquid and (2) its value is dropping in some areas, leveling off in others, and looking as if it will drop soon in most areas. (In the few areas where it still is rising, the rate of increase has slowed substantially.)  While the bubble was in its inflation phase, neither of these two negatives existed.  Sure, real estate was illiquid – but so what? You could borrow out the equity as soon as the rapidly increasing appraised value justified it. Millions did. The one-liner, “your home is your ATM” was more truth than fiction. And of course, far from dropping, the value of residential real estate in many markets was going up like the Space Shuttle.  (But even the Shuttle lands!) In many markets, homes would not be on the market more than a few days. Bidding wars developed over homes, auctions for higher bids were held. “Flippers” entered the market in larger numbers than ever. (A “flipper” is a buyer who buys with the intention of holding only a very short time and reselling.)

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