"I've cut the price twice," said a dear reader of his house in Florida. "I get plenty of people stopping by, but no one makes an offer. It's eerie. It's as if they all suddenly knew that if they wait they'll be able to do a lot better later on."

This morning, we read that major new condo projects are being closed down in Washington, DC, as well as Las Vegas and Miami. Nationwide, there are said to be almost four million new and used houses on the market. Reports from all over the country tell of rising inventories, slower sales, and price cutting.

And from other dear readers come more worrying anecdotes:

"When you mentioned Las Vegas real estate woes, I'd like to comment further," begins a letter from a dear reader. "I am a Phoenix real estate agent and March 2005 there were 5,000 houses on the market, March 2006 there were 35,000 houses on the market. Today there are currently 40,000 houses on the market. Staggering!"

How will it all end, we wonder. With a bang or with a whimper?

Meanwhile, the curious fact remains: consumers are still consuming their fool heads off. Spending and debt are still rising, despite the lag in house sales. And in surveys of consumer attitudes, the lumpen report vague presentiments of trouble coming, but no real fear. It is as if they thought they were expected to appear wary. As if it would be unseemly or lacking in gravitas to expect such fat times to roll on forever. But, queried more closely, that is exactly what they do think.

Susan Walker reports from her own Elliott Wave Forecast:

"A recent national survey of homeowners by the L.A. Times shows 'widespread faith in the real estate market.' The worst possible scenario, that prices would 'stay the same' over the next three years, was selected by just 5 percent of homeowners. That total was less than the 6 percent who said they expect to see a rise of 31 percent or more. No matter how much talk of a bubble there may be, homeowners continue to demonstrate that they have no clue about the ramifications of one. And this is in an environment in which prices actually are falling! The denial runs so deep, it's not even denial anymore. It's some kind of epic disconnect between the reality of a newly falling housing market and an unwritten social contract that says home prices do not fall."

"We recall that during the late '90s a study of investor beliefs yielded the unexpected finding that a substantial number of mutual-fund buyers thought their money was insured by the federal government. Those were the unsophisticated lumps, of course. The more sophisticated lumps believed the entire market was protected by the "Greenspan put," which meant that the Fed chairman would always come to the rescue of a falling market with more liquidity. There was some truth to this, but it didn't save the billions that had been dumped into tech stocks. Greenspan came through with the liquidity, but it flowed into housing, not dot.coms.

"It is our view that the 'irrational exuberance' has transferred from stocks to housing, setting up conditions for a 'housing deflation,' writes John Rubino at 321 Gold. "We expect a serious fall-off of home construction, sales and values, starting in 2006, and becoming very pronounced by 2007. A glut of new houses will accumulate in the next 12-24 months, causing a drop in price and construction of new units, and setting up a serious risk of price decline (similar to the 'tech wreck' in the stock market)."

But now, the lumps are betting that the new men at the Federal Reserve and U.S. Treasury, along with the president, Congress, all the ships at sea and God himself, will make sure that they never get what they've got coming. That is, they're betting that they'll never have to put back in the equity they've taken out of their houses...that there is no slip to this slope...no downside to go along with the upside...no bear market in housing to follow the bull market.

But there always is. It doesn't mean that house prices will suddenly fall. There are more ways than one to balance out a housing boom and ruin speculators; some of them homeowners would hardly notice. House prices could stay at present levels for the next 10 years, allowing inflation to cut them in half and slowly grind away at speculators, whose carrying costs would rise while their assets depreciated. Or, prices could collapse in some areas and hold steady in others. Or, they could even continue to rise, but less fast than consumer prices. Anything could happen.

*** More from John Rubino:

"The housing boom will almost certainly be followed by a long and painful housing bust. We expect that a continued rise in interest rate spreads and decline in housing sales and prices will push the U.S. in recession by late 2006, and this recession will deepen in 2007, as the housing 'wealth effect' turns into a 'poverty effect.' As defaults accelerate, lenders' underwriting will tighten significantly, leading to a precipitous drop in new home sales.

 "On the heels of the housing downturn will come a downturn in consumer spending, particularly in housing-related retail sectors (home improvement items, furniture and appliances, etc.). This will happen because variable mortgage rates are rising, fuel costs stay high, and the 'wealth effect' of the last 10 years quickly turns into a 'poverty effect,' forcing the personal savings rate quickly back up to at least the U.S. long term trend of 7.1%. With stocks and housing giving back the 'asset bubble' appreciation, the consumer has no choice but to resort to savings (as they have in the past and as they do in all other countries once the 'asset bubble' turns into an 'asset bust').

"The rising federal deficit, economic recession, lower interest rates, and declines in real estate will all lead to substantial downward pressure on the U.S. dollar. Falling U.S. interest rates will chase out investors, weakening relative demand for the dollar. If the economy experiences an asset deflation recession, the dollar could sink for a period of 3 -5 years, reaching new lows year after year."

*** The Dow is down 300 points. Japan has lost 12%. Germany's stocks are off nearly 8%...France not far behind. Emerging markets have suffered even more.

Meanwhile, gold seems to be sinking down toward $600.

How far will the "flight from risk" go? We don't know, but as we suggested here last week, we suspect the plane is headed in the wrong direction: toward the U.S. dollar. We're glad we're not on that plane.

*** And here's an interesting little item. The 26 top executives at Toyota Motor Company earn an average of $320,000. Good money, but hardly obscene. Toyota is a growing, profitable concern. And Japan is a country with a positive trade balance.

Across the wide Pacific, the U.S. trade deficit went further negative in the month of April, to $63.4 billion. But America's top dogs aren't complaining. The heads of America's 500 biggest companies received an aggregate 54% pay raise last year. As a group, their total compensation amounted to $5.1 billion, versus $3.3 billion in fiscal 2003. G. Richard Wagoner, Jr, heading up Toyota's rival, General Motors, received total compensation of $8.5 million. That's what you get when capitalism enters its degenerate phase. The parasites make sure they get their money...even as the company sinks.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.