Sean King

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Knoxville, Tennessee, United States

Wednesday, February 24, 2010

When Will New Home Sales Stop Declining?

When economists stop being surprised by their decline:

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who were expecting a 5 percent increase over December's pace.

"Tops" occur when everyone starts to think that an asset will appreciate forever (think real estate circa 2006), and "bottoms" occur when everyone becomes convinced that an asset will fall in value forever. So long as economists are regularly surprised by real estate's decline, we are no where near a bottom.

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