Prices are falling in some cities
So far this year, home values are falling in only one out of every three cities.
But they've declined enough to drag down the median price for the entire country -- which is what you hear about on the news.
The National Association of Realtors says the median selling price for all types of single-family homes reached a record $221,900 in 2006, up from $219,000 in 2005 and $195,200 in 2004.
That 1.4% increase was the smallest since the Realtors began tracking prices in 1968 and far short of the average annual appreciation of 6.5%.
When the year began the association projected prices would rise a paltry 1.0%.
Then a spate of defaults -- primarily among borrowers with below-average credit -- resulted in a growing number of foreclosures. That has hurt home values in neighborhoods across the country because banks often sell repossessed homes at a discount just to be rid of them.
Now the Realtors expect prices to decline 1.7% to $218,200, and data from the second three months of the year show the median sales price for existing single-family homes was 1.5% lower than in April, May and June of 2006.
But home values are most volatile in those parts of the country suffering economically -- Michigan, Indiana and Ohio -- and where prices soared the most over the past few years --California, Florida and Arizona.
Prices were actually up in two thirds of the nation's housing markets -- a startling 21.9%, for example, in Salt Lake City, and 19.8% in Binghamton, N.Y.
There's no consensus on when prices will recover. While the Realtors say homes will recapture this year's loss with a 2.2% gain next year, Bank of America economists say home values will decline another 2.5% in 2008, followed by two years of flat prices.
Moody's Economy.com Inc., a research firm in West Chester, Pa., has predicted median prices will decline in more than 100 cities over the next several years, with 20 metro areas experiencing a decline of 10% or more.
But that's one of the direst predictions we've seen and even it expects home prices to give up only a few percentage points of their substantial appreciation.
Nor is a slight decline a bad thing because housing costs have been growing much more quickly than the incomes of potential buyers in some cities, particularly along the east and west coasts.
That priced many buyers out of the market, particularly younger, first-time buyers. Allowing incomes to catch up with home prices will bring those buyers back and set the stage for home values to return to more substantial growth in a few years.
Unfortunately, too many sellers have dug in their heels and are determined to get just as much as the guy down the street who sold at the peak of housing boom, no matter how long they have to wait.
Potential buyers look at the glut of homes on the market and think they should pay less than they would have a year or two ago -- as much as 20% to 30% less in the hardest-hit cities.
For most owners the decision is simple: If you want to sell, you'll have to compromise on the price.
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