Contrarian investing is the key to consistently making money. This should be obvious, as everyone knows that the basic goal is to buy low and sell high. For some reason, however, human psychology makes this very difficult, as emotion makes it much easier to go with the flow despite what one can see on any market chart.

What investors failed to realize back in 1999 is that the all-time record highs that the stock market indices were hitting were not cause for celebration, but concern. And what even more investors, homeowners, real-estate agents and mortgage sellers fail to realize today is that the all-time record highs being registered by home prices in 2004 should be a similar cause for concern.

Notice that I said concern, not panic. Even in a crash, markets almost never liquidate value overnight. What looks dramatic on a 50-year chart might have actually been all-but unnoticeable to those who lived through it. For example, how many people even now realize that the U.S. dollar lost 40 percent of its value in the last four years? Perhaps those few who were investing in gold or the euro, but almost surely no one else.

Furthermore, real estate is less vulnerable than many other investments. Even the painful long-term 22-year decline of the Japanese real estate market has only reduced residential housing values by 32 percent. That might seem appalling, but it is markedly better than the NASDAQ, which is still down more than 50 percent five years into its bear market. This does not mean, of course, that it is wise to ignore the signs, especially if one has followed the example of many American homeowners in trading in their increased home equity for debt.

While the latest numbers from the National Association of Realtors don't look particularly ominous at first glance, two things stand out right away. First, the monthly number of existing home sales has stayed essentially flat for nine months, around 6,800,000 since April 2004. Second, average home prices peaked in June at $245,000 and have likewise remained flat. The 10.6 percent year-on-year gain trumpeted in NAR's press release was all made between February and June.

The reason this may serve to demand some attention is that as Elliott Wave International points out in its March Global Market Perspective, a reversal happens when demand wavers and supply begins to increase as sellers hold out, until eventually a few sellers give in and sell at lower prices, kicking off a wave of decline. In the stock market, this wavering demand can play out in a matter of minutes, but the longer time frame of real estate transactions requires a period of months.

The mitigating factor would appear to be that the NAR data shows a declining inventory, thus negating one factor typically required for a reversal. The problem is that NAR happened to choose precisely this time to "rebalance" its data, which otherwise would have shown a steep decline in the number of monthly home sales due to a 9.2 percent drop in the sales of new homes. This decline was accompanied by a corresponding fall in new home prices of 13 percent, to $199,400.

One is always suspicious of methodology changes, especially because they show an uncanny ability to accompany significant market points. A large decline followed the Dow's 1999 rebalancing; the 2004 repetition has thus far proved harmless. (The NASDAQ-100, being rebalanced annually, is practically useless for even short-term historical analysis).

Other potential red flags are the percentage of homeowners, at an all-time high of 69 percent, as well as the increasing willingness of state governments to get involved in helping first-time homebuyers enter the market for the first time. As the Prophet of the Waves, Bob Prechter, teaches, when the slow boat of government is finally pulling into port, it's time to ship out yourself.

It's also important to remember that an inflated home price does not mean that your wealth has increased – not if you intend to buy another house after selling your own. After all, the house you'll be buying will most likely have increased in price too. Fortunately, a real estate crash is easy to ride out as long as you keep your level of debt from exceeding the value of your house. If you're considering a home sale anyhow, this might be the right time to do it.

Vox Day is a novelist and Christian libertarian. He is a member of the SFWA, Mensa and the Southern Baptist church, and has been down with Madden since 1992. Visit his web log, Vox Popoli, for daily commentary and responses to reader email.