So what does short selling of REITs have to do with your home value? Short sellers are investors that are betting a particular stock or sector is going to be dropping in price. This is more complicated than buying (going long) a particular security, and as such short sellers are generally believed to be a bit more sophisticated than the average investor. The short seller borrows shares and then sells them in the open market, pocketing the proceeds. The short seller owes back the stock, not money, so if the shares do in fact drop in value the short seller uses the previous cash proceeds, buys back the stock in the market, and then returns the shares to the original firm they borrowed them from. The difference between the original selling price and the buyback price is the profit. A good way to remember how short selling works is the saying, "He who sells what isn't his'n must buy it back or go to prison." Therein lies the silver lining to short selling, in that eventually the shares must be bought back which starts the process of the shares rising in value again. But for now, shorts are selling which means they believe real estate is currently overvalued. The largest increase in short sales was in the manufactured housing sector, followed by factory outlet centers, regional malls and apartment REITs. Also today, KB Homes, one of the nations largest new home developers, reported that new housing starts were down around 12%. Earlier this quarter Toll Brothers also reported a softening in the market. So, the markets seem to be saying that we are going in to a buyers market for residential real estate.