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Tuesday, August 31, 2010

Contrarian Indicators -- Housing Market Edition

"The Death of the Housing Market?"

"The reports of my death are greatly exaggerated."

--Mark Twain

It's hard to be a student of markets without some passing familiarity with so-called contrarian indicators: those harbingers that signal that a market is at an inflection point, presenting investors with a singular opportunity.

That opportunity can either be to get out -- before things crash -- or to get in, after everyone else has despaired, sold their positions -- and driven prices through the floor (of course, as we now know in nauseating detail in the wake of the housing market "troubles," there's a third option: '(sell) short like crazy').

One of the most famous stock market contrarian indicators was the 1979 Business Week cover story proclaiming "The Death of Equities" (pictured above).

Two, short years later, the Dow Jones began an epic, 17-fold rise spanning two decades.

The reverse would be when CNBC, Jim Cramer, etc. supplant sports programing on health club TV's.

In both cases, the underlying theory is that, by the time shoeshines are dispensing stock tips (supposedly, what prompted Joseph Kennedy to sell before the 1929 Crash), there are no more marginal Buyers/Sellers left -- and therefore things are about to flip.

Housing Market Harbinger

So, what would constitute a contrarian indicator for the housing market?

Besides the spate of stories heralding the "End of the American Dream" the last week or so, I can think of one, at least in Minnesota.

That would be a push to eliminate the time lag setting property taxes.


If you didn't know, by longstanding tradition, Minnesota sets property taxes every January 2 for the following year.

So, in 2012, you'll pay property taxes on whatever your home was worth -- or the government thought it was worth -- this January.

When home values are rising, this lag works in everyone's favor.

However, when prices are dropping, "sticky" property taxes are decidedly negative, delaying needed relief for beleaguered home owners.

Continuing with the contrarian theme, a very good sign of a long-term bottom in housing prices will be when conventional wisdom decides that falling prices are the norm, not the exception, and demands grow to revise how property taxes are assessed.


P.S.: want to know why Minnesota collects property taxes on May 15 and October 15?

The story I've heard is that the two times farmers are reliably flush are in the Spring, before they plant, and in the fall, after they've sold their crop(s).

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