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Archive for Friday, June 30, 2006

Housing market to slow down, but not crash

June 30, 2006

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Q: Home prices in our area aren't going up as fast as they did in the past several years, and there seem to be a lot of bargains available, so we are thinking about purchasing our first house. Our main concern is that we might be buying at the wrong time, especially if prices are going to keep getting softer. What do you think will happen to the real estate market?

A: Prices and sales in most parts of the nation gradually have been cooling throughout the first half of this year, ending a long string of record-shattering activity that pushed values in many communities up by more than 50 percent since 2001. Prices even jumped more than 100 percent in the hottest markets, including several cities across Florida and California.

Though the housing boom is ending, sales and prices seem to be gliding to a soft landing rather than heading for an all-out crash.

Q: What parts of the country will see the biggest home price gains this year?

A: That's a difficult question to answer. But again, prices in most parts of the nation should continue climbing - just not as fast as they did in years past.

Home values across most of the Midwest - where prices haven't skyrocketed as high as in other parts of the country - should rise about 5 percent, although prices in Detroit and other areas that are heavily dependent on the struggling automobile industry probably won't fare as well.

Q: Are real estate prices going to keep dropping?

A: First, home values in most markets aren't dropping - they simply aren't rising as fast as they did in recent years. Most economists agree that the price of a typical U.S. home will continue rising at a 5 percent or 6 percent annual clip in the next several months. That would be a far cry from the double-digit annual appreciation many homeowners have enjoyed, but would still be almost double this year's expected overall inflation rate of about 3 percent.

The recent cooling actually could help the market in the long run, in part by keeping prices within reach of first-time buyers and making it easier for current homeowners to "move up" into nicer houses. Now more than ever, buyers and homeowners alike need to view housing as a long-term investment instead of a way to get rich quick.

- David W. Myers is a 20-year veteran of the newspaper and magazine business.

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