This guy explains why the decline in foreclosures and distressed sales is a big negative for the housing market. While counter-intuitive, his explanation is clear - crystal clear:
In summary, the halting of foreclosures and short sales due to can-kicking - and to a larger extent exotic mortgage mods - has caused serious structural damage to the demand equation of the macro housing market, which amazingly hasn't not dawned on many yet.
Here's the full article link: Headwind For Housing
My first homebuilder short-sell is performing well so far - it has at least $10 of easy downside in it from here, with patience. This stock traded below $5 in the 1990′s and I expect it go below $5 eventually once again: Homebuilder Stock Short-Sell Idea
As the overall stock market begins to price in reality and sell-off quickly, it will exert particularly heavy downside force on the homebuilder stocks.
Disclosure: The author is short DHI, KBH, RYL.