"I've started thinking about real estate again," my wife told me last week."All the news is negative on TV. Isn't that when you say you want to start looking?"

She's close... But actually, it isn't quite time yet... At this point, real estate is still a "story" that people want to hear about. So it's not a "buy," yet.

The fact that the housing situation is so heavily reported on TV tells me that we haven't quite made it to the last few phases yet. What are the phases? Legendary Merrill Lynch analyst Bob Farrell describes them well... and they apply to all assets...

"First there's the guillotine stage – the sharp decline. That creates fear. Then there's the feeling of being sandpapered to death. In place of fear come feelings of apathy, lack of interest, and finally, hopelessness.”

I have to admit, I was fooled... Late last year, I thought the hubbub had died down enough for us to buy homebuilder stocks. Contrary to what most people believe, homebuilder stocks tend to soar when builder sentiment is terrible.

As you can see from the chart below, homebuilder sentiment looked as if it had bottomed late last year... and homebuilding stocks had just started rising. Then, the subprime mess hit, and the downturn returned.

Hombuilder Stocks vs. Builder Sentiment

Shares of homebuilders can rise hundreds of percent after homebuilder sentiment bottoms. It happened in 1991, and again in 1995. So when homebuilder sentiment bottomed again in late 2006, it looked like we were buying as things seemed "less bad." Then, in a move without historical precedent, homebuilder sentiment turned down again.

I expect when this thing finally turns around, the place to be will be in shares of homebuilders. They rose by many hundreds of percent in less than three years the last two times around, as things went from "bad" to "less bad" in real estate. I expect we'll see the same thing again...

My wife was talking about buying property... like possibly buying a rental property. But here in Florida, the rents hardly cover the property taxes and insurance, much less the closing costs and annual maintenance costs.

I'd rather make hundreds of percent in just a few years, with no debt or carrying costs.

We will revisit this trade someday. But I don't know where the bottom is, and we don't feel the need to try and call it to the day, when there are hundreds of percent gains over a few years ahead of us.

Bill Gross thinks things will get worse before the Fed comes to the rescue and starts to cutting rates to save the housing market. For speculators, that first rate cut is probably a good buy signal...