Home Prices: up or down?

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I can hear some agents in my office muttering about how their buyer clients are hesitating to purchase in this market.  It seems that many folks feel that home prices are soon to come down a bit.  As you know, real estate is cyclical – prices rise, and they fall – so yes, one day, the prices will come down.  The question is, when?  And by how much?

I’ve been telling people for years, throughout this recent boom in prices, that if they’re buying now under the assumption that they can flip the property in a year or two, without doing anything to it, and expect make a profit that way – that this is highly speculative and therefore risky.  Of course, if you bought two or three years ago, your gamble would have paid off.  Will the same gamble pay off if you buy today?

Maybe, maybe not!  It’s all speculative.  Many folks say no, that the market is due for a “correction.”  But they have been saying that for years.  It could be we’ll have another couple-few years of home price growth before we see the next downturn.  Or, it could be a decade before prices actually drop – many “experts” are predicting that we’ll hit a plateau that will last a long time, with home prices not moving too much up or down.

So if you’re looking to buy a home and you’re thinking that you’ll save money by waiting…you might want to think again.  Freddie Mac has just released the quarterly Conventional Home Price Index, showing that home price growth moderated to 12.5% in the fourth quarter of 2005.  Freddie Mac’s chief economist, Frank Nothaft, commented:

“We’ve now seen two consecutive quarters of moderation in home-value growth. We expect the trend of slowing growth in home values to continue, with national average home-value appreciation about one-half of last year’s rise. This would still be above the long-term average growth rate and reflects a still vibrant but normalizing housing market.”

That, of course, is a prediction for the nation as a whole.  If you’re looking for more localized price predictions…you can download the 2006 forecast from the California Association of Realtors.  You’ll need Microsoft PowerPoint to view this file.

If you are intending to buy a property and hold onto it for a while, this is a great time to buy.  It is not the vicious seller’s market that we experienced last year – but home prices are still rising; you likely won’t be able to buy a home for less this time next year.

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