Home prices slipping, not crashing

House on rate chart

If you suspect homes in your neighborhood aren't selling for as much as they were last summer, you're probably right. The median sales price for an existing single-family home -- the price where half the homes sold for more and half the homes sold for less -- peaked at $227,600 toward the end of last summer. It then fell, according to the most recent survey by the National Association of Realtors, to $225,300 during the fall and $217,900 this winter.

When we took a closer look at the Realtor's data, we found the median sales price fell in 96 of 144 metropolitan areas between the last three months of 2005 and the first three months of 2006.

That's quite a few and was almost exactly the same number of areas that reported slumping prices in late 2005. The median sales price fell in 94 of 144 metropolitan areas between the third quarter July, August and September and the last three months of the year.

But going back a little further we found und that that was certainly not the case in the first half of 2005. Only:

So last summer sure looks like a tipping point to us.

(Just so you know: The total number of metro areas changes because the Realtors don't report data for every city, every quarter.)

What should you make of this?

Don't be dejected, even if you're trying to sell your house. If home values are falling in your area, they are falling after years of significant appreciation.

Whether it's stocks, gold, pork bellies or houses, selling at the peak of any market is mostly luck. Recognize that you probably won't make the killing your friend down the street crowed about last summer. But if you're reasonable, you'll still be able to sell your house in no more than a couple of months and walk away with a very fair return.

The Realtors point out that home prices in 60 cities are still more than 10% higher than they were in the first three months of 2005. Take Greenville, S.C., for example, where the median home price was $147,400 this winter. Should a Carolinian despair because that's down from $152,200 during the last three months of 2005? No. It's still $12,000 or 10.4% more than last winter.

If you're buying a house, this takes a big burden off your back. You no longer have to worry that you're buying just as prices are peaking in many cities they peaked six to nine months ago.

The key is to know exactly what's happening with prices in the community where you are buying. Find out what comparable houses sold for last summer and this spring, then bargain accordingly. A house should still be part of your plan to build long-term wealth with a healthy mix of investments.

Could your new house decline in value after you buy it? Yes, it could. There's a lot of uncertainty out there.

Some very well-respected experts have raised the possibility that home prices are artificially high because lenders loaned buyers too much money, creating a "real estate bubble" that's destined to burst and send prices plunging 25%, 30% or more.

We spoke with Paul Kasriel, chief economist for Northern Trust, a Chicago-based bank, and he sees bubble-like characteristics in the housing market. Buyers bid up prices and bought bigger houses than they could afford by obtaining loans with low introductory rates and little or no down payment. As those low introductory rates run out, millions of families will see their payments soar, which could lead to a slew of foreclosures and rapidly falling prices.

If the Federal Reserve the nation's central bank continues to push up interest rates, Kasriel says "housing is going to go down hard. If the Fed stops raising rates, there's a chance of gradual cooling.

"So far the numbers indicate we're in for some pain, but not the kind of calamity that struck technology stocks when the infamous dot-com bubble burst in 2000. We'll follow this closely, so check back with us on a regular basis for the latest information and advice.

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