The Outlook for Housing Prices

AS AMERICANS, we expect nothing less than life, liberty and a house that appreciates in value year after year. But median prices of existing houses have increased less than the Consumer Price Index in five of the past nine years. Median prices also show little or no gains in some cities from year to year. For example, prices have been flat recently in Miami, Tulsa and Phoenix. And in a few, such as San Antonio, Denver and Oklahoma City, the median sales price of existing single family houses actually fell in 2005.

Economists and other analysts who watch this market say the message is that it's high time for homeowners to lower their expectations. Many reckon that houses in general will appreciate only about as fast as the inflation rate. Therefore, it's quite likely that they will not rise more than some 5% a year for the next few years though, of course, there will be greater and smaller appreciation in some communities.

The prospect of modest gains has broad implications for mobile' Americans who have come to depend on their houses as their best overall investments. For example, you would be wise to refrain from stretching for a second mortgage or home equity loan on the expectation that the eventual sale of your house will bail you out. And unless you live in a house for at least three to five years, closing costs, brokerage fees and other expenses may wipe out any profit you can expect when selling.

Looking at the positive side, not only were mortgage rates heading down in mid 2003, but they were lower than they had been for most of the past 10 years. Also, today's economy is far healthier than it was in the early 1980s. It was then that the recession and mortgage rates above 13% sharply reduced the number of house shoppers and prevented sellers from raising prices.

If you are a homeowner, don't be overly concerned about tax reform. Although a drop in your tax rate makes real estate write offs less valuable to you, you can still deduct your mortgage interest payments and property taxes.