Do you remember the popular song, "It's Raining Men," originally recorded by the Weather Girls in 1982?

The song was written by Paul Jabara and Paul Shaffer (David Letterman's band leader) in 1979. "It's Raining Men" became an international hit, selling six million copies worldwide. The song was offered to Diana Ross, Donna Summer and Cher (they all passed on it) before being picked up by the Weather Girls.

"It's Raining Houses" was written by Alan Greenspan. He didn't mean to write it; he kind of fell into it, experimenting with interest rates that were artificially low in the summer of 2004. Depending on whose report you believe, between seven million and eight million homes in the U.S. are either vacant or in foreclosure. "It's Raining Houses" has been a bigger hit than "It's Raining Men." (Sorry for all the sarcasm this morning.)

Devastating, but expected news about the U.S. housing market, likely the sole factor holding back the economy now, was released this week:

• According to RealtyTrac Inc., banks repossessed 95,364 homes in August 2010, up 25% from August 2009. This year will be a record year for U.S. home foreclosures.
• The S&P/Case-Shiller index of home prices in 20 large American cities says housing prices have fallen 28% since the housing market went bust.
• Sales of new and existing homes fell to the lowest level in U.S. history in July. The median price of previously owned homes in the U.S. is now at the same level it was in 2003.

(On March 28, 2007, I wrote my lead article for PROFIT CONFIDENTIAL that day predicting home prices in the U.S. would fall to 2004 price levels. I was off by a year. Boy, do I ever remember getting letters from readers back then telling me I was crazy and that what I was predicting would never happen.)

Aside from the seven to eight million homes that are either vacant or in foreclosure, millions of other homes have mortgages worth more than the value of the properties that secure their mortgages. About one in four U.S. homes with a mortgage are what are termed "underwater."

The U.S. housing market has never seen a price decline like we are experiencing now. On the other hand, the housing market never experienced the boom it did in sales activity and prices that it did in the period of 2002 to 2006.

How will the housing bust end? Eventually, even though it may take years, the inventory of homes on the market will be taken up by buyers who will be getting the deal of a lifetime. Yes, this is hard to see today. But I always see the glass as half full as opposed to half empty.

In the midst of the oil crisis in the mid 1980s, when oil fell to $9.00 a barrel, and the Resolution Trust Corporation was subsequently created by then President Ronald Reagan, it also seemed like the housing market would never rebound.

I have many friends who are picking up distressed U.S. real estate at 2003 prices today. They couldn't be happier. Years ahead, the will look back at "It's Raining Houses" and see just what a big hit (financially) it was for them.

Michael's Personal Notes:

PIMCO, the world's biggest bond fund, reduced its holdings of government bonds from 54% in July to 36% in August, according to its web site. I guess I'm not the only one calling U.S. Treasuries a bubble.

When a debt-ridden government has a line up to buy its debt, while that debt pays a return of less than one percent interest per year, you realize that the great majority of investors are still worried about the economy and the security of their money. If I have learned one thing in 30 years in this business, it is that the consensus is usually wrong.

The buyers in the bond market — and there are plenty of them, because they are driving the yields on Treasuries down to nothing — are missing the opportunity in the stock market.

Where the Market Stands:

It's been a nail-biter, but the market keeps riding that "wall of worry." A few points here, a few points there, and all of a sudden the Dow Jones Industrial Average is up 1.6% for the year. I understand it is not a big gain. But some individual stocks, especially the gold stocks, are having a great year. Even if you add the Dow Jones' gain of 1.6% to its dividend yield of 2.7%, you are looking at a gain of 4.3% for 2010 — a heck of lot better than a one-year U.S. T-bill paying 0.23% interest.

Last night, RIM and Oracle posted earnings that beat the Street. While the naysayers were telling us corporate profits would turn soft, big companies are piling on the profits.

At some point, the market needs to break from its trading range and give some direction. I continue to believe that breakout will be on the upside.

I have written several editorials now on how the current price/earnings multiple and the dividend yield of the stock market make for attractive alternatives for investors stuck in bonds. I see investors fed up with the low yields of Treasuries leaving bonds for stocks.

What He Said:

"The conversation at parties is no longer about the stock market; it's about real estate. 'Our home has gone up this much' or 'Our country home has doubled in price.' Looking around today, it would be very difficult to find people who believe that one day it could be out of vogue to own real estate, because properties would be such a bad investment. Those investors who believe a dark day will never come for the property market are just fooling themselves." Michael Lombardi in PROFIT CONFIDENTIAL, June 6, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

**09/20/10 — Michael Lombardi is away on assignment; his column will return on Wednesday.