Inflated prices potentially cause harm to banks, which could take a hit if the mortgage holder defaults and the home turns out to be worth less. It also could affect buyers of neighboring homes, who may be making decisions based on faulty data.

When sellers use incentives to reduce the actual price without cutting the reported price, "then the reported prices are an overstatement of the true net selling price," said Lawrence White, Deputy Chairman of the economics department at the Stern School of Business at New York University. "So that very likely means that the real drop in home prices is greater than what the standard sources, like the National Association of Realtors, have been reporting."

The realtors association reported that prices of existing homes fell in August for the first time in a decade. That marked the first year-over-year drop in home prices since April 1995.

In calculating the much-watched home price statistics, cash and non-cash perks are left out, implying that true prices are even lower than the statistics indicate.

In the current slowdown, sellers and builders are moving beyond kitchen remodels to offering just plain cash. "An economist would call that a price cut," Duncan said. "That's not captured in the data."

The inventory of unsold homes rose to a record 3.92 million units at the end of August, the National Association of Realtors reported.

Laperriere points out that 79% of FirstFed Financial (nyse: FED) loans in the first half of the year were stated-income loans, according to its latest 10-Q. Almost one-fifth of Washington Mutual's (nyse: WM) loans during the same period were option-ARMs. And at Countrywide Financial (nyse: CFC), 42% of its giant mortgage portfolio consists of option-ARMs.

As an example, 62% of non-agency loans made last year had low or no income verification, up from 24% in 1998. Also,52% of such loans made in 2005 had zero or negative amortization requirements. In 1998 there were no such loans.

He points out that of the record $2.3 trillion borrowed by Americans in 2005, fully $1.2 trillion was an unprecedented level of home mortgage debt. The growth in total borrowings last year was over 9%, way above a longterm trend, and way above GDP growth. The ISI analysts report that American mortgage payments have never been higher when compared with wages and salaries. That excess is not supportable.

29255 Kuhn Lane, Mechanicsville, Md 20659

This newly constructed home by Branchwood Construction started out in the MLS as listing number SM6094479 on 19 June, 2006 with a sales price of $525,000. The trickery with this home began right off the bat, because when the listing was created in the MLS database, a Maryland Tax Identification number for the property was never assigned to the listing. The listing agent simply entered XX-OOO-XXXXXX as the Tax ID. The home was for sale as this MLS number for 47 days.

After not selling by 05 August, 2006, the home was withdrawn from the market and then re-listed as MLS number SM6147351 for $499,000. Being that the house never had a Tax ID entered into the MLS, the DOMM and DOMP are both reset to zero each time a new listing number is created for this house, which can potentially trick a prospective buyer into thinking that the property had just come up for sale. The house had this MLS number assigned to it until 14 October, 2006 when it was again withdrawn from the market. Under this latest MLS number, the home had accumulated another 70 days of DOMM for a total time of 117 days, but the listing only showed the 70 days for the current MLS number. Again, this was because of the missing Tax ID in the database.

By 14 October, 2006, the house had still not sold, and it was again withdrawn from the market. Once again a new MLS number was created. This time the home was resurrected as SM6218316 and even though the home had now been for sale for 117 days, the listing information for SM6218316 reported that it had only been on the market for 1 day. The price had also now been reduced to $475,000.

The reason I am spending so much time on this and making an effort to bring home the point is that if we are not aware of this and prepare for it, the analysts are going to have everyone believing we are on the edge of a catastrophe and the belief that they are right will bring about the catastrophe they predict.