It is a buyers' market, no doubt. Buyers have unprecedented inventory to select from. February sales fell yet another 9.6%, worse than economists expected. Median price is down 5% from this time last year. Affordability is at an all time best, and inventory rose 3.5%.

Put all these together, you get buyers' market -- in a big way.

So how do you buy a house in today's climate? Some diligence.

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1. You lived in the home - primary/principal residence
2. the loan was used to buy, construct or improve that home referenced in #1
3. the income not taxed is capped at $1 million for a married person filing separate and $2 million otherwise;
4. the short sale has to take place after Jan 1, 2007 and before January 1, 2013 (any guess as to how long the government thought this might be an issue? Hmm...)

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I've been listening to many analysts these past few days cite the Case Schiller numbers that came out today along with the existing home sales numbers that came out two days ago as a sign the market is rebounding -- the numbers are *bogus* and here is why.

First - and vital - Case Schiller is a bunch of bunk. They are a 20 metro city index - 20. This is not a national number. They also have a new ETF, UMM, that trades higher if people are optimistic about the market. One of the major indices we "used to use" should be completely removed out of the market because of its now inherent bias.

I'd like to be bullish on real estate too but here is why the numbers suggest otherwise.

1. 11% increase in sales means contracts (number released this week). It doesn't mean the homes will close. This is up to banks! Have you tried to get a loan lately? :)

2. 32000 more homes sold in May to June than expected. This is 1% of the 3 million in inventory. (note: correction from .01% thanks to Mark Steele)

3. Inventory dropped from 10.8 months to 8.8 months. The 10.8 months was an over inflated number from foreclosures.

4. In major cities it is foreclosures accounting for as many as 60% of sales at incredibly reduced prices. This will create new comps for appraisers, which means many of the homes noted in #1 won't close because they won't appraise!

5. 22% of people are upside down. Studies show that when a homeowner is 15% underwater (owes 15% more than the home is worth) 1 in 4 default on purpose plus the rest that just default. More foreclosures are coming.

6. Foreclosure moratoriums have ended, so we will only now see those hitting the markets.

7. Looking at spring buying numbers - down 21.3% over this time last year. This is a good sign?

8. The tax credit incentivizing some buyers to get off the fence is ending Nov 30, 2009.

9. Jumbo defaults havent hit the market yet.

10. When we hear numbers like "new housing starts up 3%" this is NOT good news! This is inventory which = supply which = downward pressure on prices.

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Analysts are all excited about the new housing numbers - unfortunately they don't mean anything positive for the market. Let's break this down.

1. There is an $8000 tax credit for "first time" home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.

This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.

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