As I’ve noted in the past, Markets obey a basic rule: they reverse after extremes. The basic reason for this is that extremes demand action from various interested parties, which ignites a major shift/change in the Market that ultimately changes fundamentals, pricing and the supply/demand picture. So I was pleasantly surprised to read today that home buying is now at a 13-year low.

The Mortgage Bankers Association noted that:

“Sales of new homes plunged nearly 33 percent in May, however, to the lowest since record keeping began in the early 1960s and existing home sales unexpectedly fell 2.2 percent. A double-dip recession is a growing concern.”

So is the lowest new home sales on record a sign that a reversal is near?

Of course, I don’t have a clue as to the timing (note: I’m taking a beating on my recent ZIPR investment), but my guess is that residential real estate after years of decline is finally facing a major extreme and will reverse. It’s nearly impossible to imagine that a change will occur when extremes and pessimism reign supreme, but there always is a change and reversal at some point. My guess is something radical, albeit rational, will be implemented soon to maintain a “floor” in real estate. Undoubtedly, on a more immediate basis, the homebuyer tax credit will be extended and renewed.

It’s also interesting to note, that in general, humans are followers as opposed to leaders. This is why nearly everyone sells at the bottom and buys at the top. So when significant social trends, that still represent value, reach a record low, the odds are high that a bottom has been reached.