I can't emphasize this enough. My thoughts on the economy revolve around the behavior and status of middle class Americans. This has served me well, and is the backbone for my current state of concern related to the real estate market.
Microeconomics usually works great, and as we see price decrease, we see more buyers, reducing supply, and bringing price back to normal levels. However, there is one glaring point that I believe wall street is overlooking. Investments in consumer real estate, for the most part, are leveraged and operate hand-in-hand with the mortgage market. When prices fall, and a home owner defaults on their mortgage, a bank(or an insurer, like Uncle Sam) takes a loss, a consumer spends less, one unit of supply is added to an oversaturated market, and one potential buyer is eliminated due to their credit being harmed.
^If we see interest rates increase 2% within 2 years, the vast number of defaults we will see will literally destroy the American economy. We have already seen our national government go to great lengths at great cost to prevent such a scenario, and I believe they will continue to take decisive action to protect middle class wealth.
Wall street thinks that we're set to see rising rates along with inflation and a weakening dollar, but my analysis tells me that while we will continue to see inflation and a weakening dollar, we will not see rising interest rates. Also, while housing prices have shown signs of increase, i think there will soon be a strong reversal and even a state of fear hitting the market this summer due to depressed prices and houses not moving. I have a long mental list of pushing and pulling forces on supply and demand in housing, but I'll refrain from writing that all out here.
While I'm still bullish long term, if we continue to see rising prices in prices and stocks, I will slowly move to cash and prepare for a strong correction.
While I can't be certain of a macro call on the stock market, I would guess that we will see a weak return on stocks this year, perhaps -10% up to 5% on the S&P 500. The main thing pulling this down will be defaulting mortgages and low housing valuations causing fear.
I don't expect this "double-dip" to be as great as what we saw in '07-'09, but we will definitely see more volatility, and better buying opportunities ahead.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.