Ah...autumn. The crisp, dried up husks of leaves all along the lower Champs-Elysee...and a whiff of wood smoke in the air...Paris is beautiful.

On the other hand, from our native land comes a whiff of desperation.

Not since the Great Depression have nationwide prices fallen for an entire year. But that is what economist Mark Zandi, of Moody's, expects for 2007.

Still, his projected decline is modest - just 3.7 percent.

In September, the median price of a new house dropped to $217,100 - down 9.7% from a year before and erasing two years' worth of housing gains. Not since 1970 has that happened.

But what's this?

"New Home Prices Fall by Largest Amount in More Than 35 Years," says an article from the Associated Press.

And...

"Now it's a buyer's market," declares U.S.A. Today. Owners are cutting prices and throwing in appliances, automobiles and other incentives. One of the largest homebuilders - Centex - says it will cut buyers a break like they've never seen before. They'll accept below-market monthly payments for a full five years. Of course, the unpaid interest will be added to the principal, so the deal is a time bomb for most buyers. Still, if you suffering from a deadly disease or planning to skip the country before the five years is up, why not?

How much of a 'buyer's market' it is, is anyone's guess. True, sellers are willing to bargain. But they might be even more willing to bargain a year from now. Inventories are near record levels. And there are still millions of ARMs that need to be twisted and reset higher.

Of course, Alan Greenspan said that "most of the negatives in housing are probably behind us." There, that settles it for us. If the maestro thinks the housing correction is over, we are confident that it will worsen substantially.

Bond investors seemed to take notice of the weakening housing sector. Yields rose...and the yield curve, said to be a reliable indicator of coming recession, inverted even more than before. The federal government can borrow for 91 days at 4.97 percent. But when it borrows longer term, say for 30 years, it pays less - just 4.72 percent. Of course, it doesn't make sense that lenders would want higher interest rates for the near-term than for the very long term. In 30 years, compared to 91 days, there are 120 times as many things that could go wrong.

So, something is fishy.

But stock market investors didn't smell anything strange. They noticed neither the nation's houses falling down all around them, nor did they notice the inverting yield curve. Yesterday, the Dow hit yet another high.

Maybe investors are convinced that nothing can go wrong - no matter how far out you look. Housing going down? Nuclear bombs in North Korea? $1 trillion trade deficit? Oil on the rise again? Nothing seems to frighten them. Volatility, a measure of fear and uncertainty, is near an all-time low.

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