The fall in real estate sales may portend trouble ahead for stocks

The cost of housing has risen dramatically in many sections of the country. In March, the index of property prices in 20 major cities rose 13.3 percent year over year.

That figure appears to be a positive indicator for the home market.

Then why is there danger brewing?

So, here’s a chart that could help.

Even in paradise, there are tiny but significant indicators of disaster.

Total new and existing house sales reached a countertrend rally high in October, but were still 21% behind the all-time high in July 2005, as shown in the graph.

The reality is property sales reductions have historically been followed by a drop in home prices.

Additionally, stock and real estate prices have always been tightly linked.

Here’s a graphic from Robert Prechter at Elliott Wave International.

Back in July 2006, prices peaked.

It wasn’t until October 2007, that stock prices peaked.