But I can see it from my back porch!

The market dived over three hundred points today. The Dow is down 23% for the month. It’s now down to it’s lowest close since April 25, 2003.

When I predicted the market would surge one day before it racked up the largest point gain in history, I also wrote, “Temporarily.” Looks like I called both of those right. But if you squint really hard, you can see the end of this insanity now. Maybe not the insanity in the stock market, but at least the insanity in the real estate market.

Buried in the landslide of information today was this little gem from the Associated Press: “Sales of existing homes rose by the largest amount in more than five years in September.” Prices, of course, are down by the huge (in historical terms) amount of 9 percent, year over year.

Before this started, I thought actual real estate selling prices never dropped. Sales sometimes dried up, but prices either stayed the same or went up. Was I wrong about that! In real estate hot spots, the news is even more dramatic. In Florida, home sales in September were up 51 percent, but the median price fell by 22 percent. In the San Fernando Valley, sales were up 82 percent in September as median prices fell by 37 percent.

To check my understanding with the facts here in Color Country, I contacted my ’source’ in the local market. (I’ve named my source “Deep Well” to preserve anonymity.) Earlier this year, I asked Deep Well where real estate prices stood in Color Country. Deep Well said, “You can’t tell. No listed homes have sold in over a year. So you really don’t know what the actual market price is.”

Today, I asked if the situation was still just as murky. “No, there have been two sales recently. But both were well below $400,000 and that’s low for Color Country. They were both older existing homes too. So, just like the rest of the country, prices are down and sales are up.”

Since real estate is the dark pit that all this started with, this is a hugely significant development. What it actually says is that other people have finally started to change their minds just like I have. Some are cutting their asking price because they are becoming convinced that they’re just not going to move the property unless they do.

A lot of the recent collapse in prices is due to distressed sales (foreclosures and short sales). These numbers will still have a dramatic effect on the expectations of buyers and sellers, but the fact is that we’re just about through that inventory of junk loans. As we get back into a market where willing buyers and sellers have to agree on a price again, prices will stabilize.

Trillions of dollars have been pulled out of investments. Where will it go? They’re not all going to buy gold and bury it in the back yard. As the bargain of historic proportions in real estate starts to sink in to the consciousness of investors dazed by losses in stocks and banking investments, they’ll realize that it’s not real estate that’s a bad investment, it’s the loans behind the real estate. If you own the actual asset, it’s still hard to beat.

This trend will be supported by more accomodative government, both in creating a credit market with the bulldozer of the bank bailout bill and in doing what they can to lower costs. For example, Hurricane City is highly likely to lower their impact fees for new projects. They have decided that robbing buyers and developers doesn’t work when there are no victims to be robbed. So they’re trying to convince a few that it’s safe to come out of their bunkers again.

So I hereby predict that home sale prices either have bottomed out or are very close. But prices won’t go up. Or, at least, not right away. Willing buyers have lost enough and will only part with their money if they’re convinced they’re getting a bargain. But I think the belief  of sellers that they can wait a year and automatically get a higher price has been washed out, so they’ll agree to these bargain prices. Sales volume will stay high.

This could be the brightest investment move in fifty years. If I’m right about the inflationary effect of the bank bailout, real estate will simply keep pace with inflation – which will be an amazing feat once the inflation being created by all this public debt, deficit and forced market creation gets rolling. It could be about the only “capital preservation” game in town that actually works.

Like they say about real estate – or used to say, anyway -  they’re not making any more of it.