Real estate normally appreciates one to two percentage points above inflation, but between 2001 and 2005, real estate increased 50 percent, an abnormally high return that benefitted homeowners and sellers across the nation.

Then in 2006, prices and sales began to return to a more normal rate of return, but still far from historical norms resulting in the third best year for real estate sales ever.

It was the first year of national median price declines since the National Association of Realtors began keeping figures in 1968. And the NAR predicts that 2007 will also be a year of decline, which raises an interesting question -- what causes home prices to decline? Are buyers being pushed to the sidelines by the media or fundamentals?

First, there is no "national" market. Sales figures must be local in order to be meaningful, but that doesn't mean that buyers don't retreat out of fear as well as market realities such as job loss, population outflows, and overbuilding.

According to the Joint Center for Housing Studies of Harvard University's "State of the Nation's Housing 2006," overbuilding and job loss are preconditions for metro area housing price declines. Between 1975 and 1999, the percent of times that overbuilding and major employment loss led to price declines was nearly 8.3 percent and 4.5 percent, respectively.

Yet, buying conditions after 1999 changed:

Significant baby boomer wealth was poured into upsizing homesteads and purchasing second homes. GenXers came into their own with white collar jobs and stock market gains and were able to buy homes with less money down due to generous loan programs never before provided by lenders to previous generations. Government subsidies continued in the form of low interest rates, hovering at 30-year-lows since 1998. Homebuyer demographics also changed with more households forming, including record legal and illegal immigration. Single women homebuyers are now 22 percent of the market, up from 15 percent in the 90s.

By 2005, one in ten homeowners owned a second home.

Those positive conditions haven't changed, but homebuyers are moving to the sidelines nonetheless, most likely in reaction to double-digit price gains in many metro areas. Not only did affordability hit a wall, particularly in California, but buyers simply lost patience with ever-escalating home prices. That's when a variable comes into play that has nothing to do with fundamentals -- attitude.

Wall Street is on a roll with a record-flirting DOW, jobs are up, inflation appears to be under control with Federal Reserve rates standing pat, mortgage interest rates are low, and new home-building has slowed significantly. Each of these is a strong buying signal for housing, yet, encouraged by the financial press and Wall Street pundits, buyers are being told to force home sellers' prices down, even in areas that sat out the boom. And it's working -- prices are down for the first time since 1968.

Dallas home appreciation has been under the national median for over 15 years, so it hardly cashed in on the recent boom, and while many investors already recognize Dallas as undervalued, others want to punish sellers. But are they cutting off their noses to spite their faces?

Realtor Mary O'Keefe says one of her clients refuses to take her advice when making offers. He prefers to listen to his Wall Street buddies who don't live in Dallas and aren't familiar with sold comparables. "They're telling him that he should offer $50,000 less than the asking price," says O'Keefe, who has been showing the buyer townhomes. "Consequently, he's lost out on two great properties with low-ball offers, but he just won't accept that it's his expectations are unrealistic, not the sellers. Properties are selling out from under him."

Some buyers aren't going to be happy unless the seller's blood runs in the streets. It's about winning, not buying a home.

Common sense dictates that when prices decline, that's the time to jump in. It's why consumers love department store sales, year-end car and truck clearances, and stock market fluctuations. Buy low and sell high is what we all wish we could do, even if we don't buy in at the lowest low or sell at the peak.

For home sellers, the name of the game may simply be patience. There's a point when others begin to recognize a good deal and they'll make the offer that the seller will accept. The more that happens, the closer the market is to turning from a buyer's market to a seller's market.

Realtors working with buyers should be letting their clients know a basic economic fact of life: if fundamentals aren't supporting a market decline, then it's not going to decline for very long. If the nation and individual communities are adding jobs and population, a market decline is destined to be short-lived.

Price is a legitimate concern, but with growing inventories, buyers should be taking advantage of an abundant selection to improve their vantage points. In other words, you may pay a little more for the house on the hill, but think of the alternative. In a seller's market, pickings are slim and if you want to buy, you take whatever's on the market. There's something to be said for getting the best home available for the money in a buyer's market. It's about vantage point.

Published: December 15, 2006

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.