Prospective homebuyers and sellers are receiving mixed signals regarding their best prospects for sales or purchases.  It’s important for both sellers and buyers to have a strategy planned.

Putting together that strategy plan could be difficult and confusing, though, due to the mixed signals.  Inventories are up, and sales appear to be dropping in many areas.  For instance, Massachusetts sales were down 21% in January.  Sales are falling in other large markets as well, such as Florida , Arizona, New York and California. 

According to the National Association of Realtors, the inventory of unsold homes on the market is at the highest rate in seven years.  Unsold house listings are up to 2.8 million, up 580,000 in the last year.

This would make you think that it’s a bad time for sellers.  Here is where things are confusing.  Prices are going up, despite the apparent slowdown.

The Office of Federal Housing Enterprise Oversight said that the average home value rose by 13 percent from the fourth quarter of 2004 through  2005. The National Association of Realtors said a record 72 metropolitan areas saw double-digit annual increases in median  home prices in the last quarter of 2005.

Federal researchers found that gains were very high.  In Arizona, prices grew 35% from the end of 2004 through 2005.  Florida’s average gain was 27%.  California also saw gains—21%, and DC was at 22%.

Currently, these same markets are experiencing rising inventories, slowed sales and reporting price reductions.  If markets are cooling, and most agree that they are, why aren’t we seeing substantial price drops?

David Lereah, the chief economist of the NAR suggested that the fourth quarter median prices could have reflected inventories from the summer.  The good news, he said,  “is the supply of homes on the market has been trending up.”  This allows for more balanced bargaining for buyers.

Lawrence Yun, the association's senior forecast economist, says, ``double-digit price appreciation mostly is history. Home sellers will have to adjust their expectations and sell at more competitive prices.''

Sellers should not use the last quarter of 2005 prices to market their property this spring.

''Rather than putting a home on the market at a 15% higher price than last year,'' said Yun, “try 'for 5 %' more this spring.”

Buyers need to expect prices to not far too low from prices of 2005, unless the property is in an area hit with poor economy due to layoffs, or excessive supply, as is seen in some areas due to investor condos.

Interest rates are also going to play a role in pricing and sales.  Prices will not drop much when the rate is still hovering at the 6% range on a 30 year fixed mortgage.

In planning your strategy, talk to experts on the front lines such as top real estate agents, appraisers, and locally based loan officers, to determine current trends in the area you’re considering. 

If you're a home seller, have reasonable expectations.. If your prices are out of reach, the longer your house will sit unsold.  Buyers need to bargain, but not expect miricles.

Patricia Fuller

Real Estate Press