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The Housing Theory of Everything

The stock market reacted strongly to new numbers on existing home sales on Feb. 25. That reaction caught my attention, because it seemed bizarrely out of proportion to some flimsy, mediocre data. It's yet more evidence for a

The stock market reacted strongly to new numbers on existing home sales on Feb. 25. That reaction caught my attention, because it seemed bizarrely out of proportion to some flimsy, mediocre data. It’s yet more evidence for a “housing theory of everything.” Here’s the theory: The extent to which U.S. home prices fall will matter more than almost any other economic statistic this year.

Good news on bond insurers likely caused stock’s late-day rally on Feb. 25, but it was the home data that seemed to lift stocks out of negative territory early in the day. Existing home sales fell 0.4% in January, which is usually a slow time for the real estate market, and the supply of homes on the market still rose from 9.4 months to 10.1 months. But this still qualified as good news because it was better than the doomsday scenario many are expecting.