Home Prices: What Does The Future Hold?

The news isn’t too bad, but it isn’t too good either.

Nationally, in the 4^th quarter of last year, housing prices dropped 2.7 percent as compared to the 4^th quarter of 2005. Not only does this news have homeowners worried about their home’s value, but potential buyers and sellers are concerned as well. If you’re a buyer, you may be fretting over when the best time to buy is; if you’re a seller, you may be worried about your home sitting on the market for a long period of time.

This latest news also brings up an important question: In the near future, will home prices go up again or will they continue to fall or remain flat? Unfortunately, that’s not an easy question to answer...

Will home prices go up again? Although it’s a given that home prices will rise again at some point in time, many experts believe that prices will go up in the very near future. The National Association of Realtors (NAR), for example, believe that prices will start to increase again (although very slightly) as soon as this summer. The reasoning behind this belief is based on historical data. Except for the prices in the red-hot market years between 2002 and 2005, home prices have appreciated 6 percent per year on average nationally. The median five-year price increase is a robust 41.8 percent. Furthermore, price drops of more than 10 percent (for one year or more) have been virtually non-existent. In the end, prices have always rebounded within a couple of years at most and in many cases, prices started rising again within a year.

Will home prices continue to fall or remain flat? On the other hand, history may have nothing to do with the current slowdown of the housing market and, consequently, the drop in home prices. Previous downturns in the market were caused by economic factors such as high unemployment or recessions. However, the current housing slowdown is mainly the result of the recent housing boom; overbuilding and the glut of homes currently on the market have driven down prices. In other words, the real estate market is experiencing the effects a very basic principle of economics: supply and demand. Until the supply of unsold inventory on the market goes down, home prices will either continue to fall or will remain at their current level.

No matter what the answer is, however, the general consensus seems to be that the fluctuations in home prices in the near future will be minor and won’t have a major impact on most homeowners (unless you’re a real estate investor, of course). If you’re a seller, you’ll need to price your home realistically and pay attention to current market trends. If you’re a buyer and you're planning on being in the home for at least five years, now is as good of a time as any to buy.  ∆