Market Timing in Real Estate – What's happening with home prices.

Existing home sales rise, prices fall. – Yahoo!

With home prices expected to fall in most major cities, many buyers continue to wait on the sidelines.  Many sellers are waiting to sell their homes to make sure they can hit the home price peak while buyers wait for better interest rates and home prices to fall.  Reluctantly, prices are edging down as buyers are waiting out the sellers.   What motivates this mentality and is it well founded? 

 What is a little confusing is that homeowners are also holding back selling their homes even when they’re planning to just upsize in the same neighborhoods.  When a seller will become a buyer in the same market, it doesn’t matter if a neighborhood has appreciated or depreciated.  The home they are buying will be experiencing the same issues.  Timing the real estate market in this manner is not as effective as selling in Spring and buying in Fall or Winter. 

    It’s understandable that first time home buyers would approach any purchase with caution.  Since they must compare their current cost of living to the increased cost of home ownership.  The X Factor in that equation is the increased value of home ownership which varies greatly for every nook and cranny of a city.  The real motivating factors behind all home appreciation is the quality of the housing stock combined with the growth of the local economy.  For example, it’s easy to understand why home prices hit a slump when rental prices don’t keep pace with the monthly cost of a home purchase.  The cost to purchase will always be higher than renting.  The value of homes is more closely related to local market conditions and what’s going on with employment in the city where you live than anything else.  Buyers and Realtors do well to consider an areas median income when determining if a market is becoming overextended as historical averages suggest a relationship between the two.  This makes sense since if the local population can’t support the home price to purchase or rent, where is the money coming from?

Many of the areas that had experienced extensive growth in home values had been historically depressed.  This being said, the question should be asked how much of the growth was normalization to reflect the local economy.  Studying the relationships here will give a clue to how long a slow down should last.