Three new reports are rattling the housing and stock markets -- that home sales have slowed for the sixth month in a row. California home sales plummeted, although the state was able to hang on to a sliver of a price increase. Finally, the Fed has held short-term interest rates at 5.25 percent, perhaps in the belief that housing has slowed enough to cool inflation in the economy.

• The National Association of Realtors says that sales of existing homes dropped 1.9 percent in September, and prices slid 2.5 percent from September 2005 to $219,800, for both condos and single family homes.

• The California Association of Realtors reports that home sales decreased 31.7 percent in September in California compared with a year ago, while prices squeaked upward 1.8 percent. The state now has seven months of inventory on hand, slightly above the six-month to six-and-a-half-month rate widely believed to be a balanced market.

• Despite misgivings that inflation is under control, the Federal Reserve took note of the cooling housing market and concluded that while inflation risks remain, the economy seems likely to expand at a moderate pace.

What does this mean to the average homebuyer?

Opportunity. There's a strong chance that housing is nearing its nadir.

Interest rates are just above 40-year lows. Gas prices have eased enough to grease the upcoming elections. Housing inventories at 25 percent higher than this time last year afford better selections. Pundits are beginning to call a trough in the housing market.

Yet buyers continue to sit on the sidelines, hoping for a clear bottom. What can you tell your buyers?

1. The greatest stock trader in the world -- Warren Buffett buys low and sells high, but rarely buys at the lowest low or sells at the highest high. His skill is in recognizing opportunity before someone else does.Your buyers can improve their vantage points before someone else snaps up that better house in better condition in the better neighborhood.

2. The Fed reports that "holding gains" on household real estate from mid-2005 to mid-2006 was nearly $1.7 trillion. Balance sheets show a year-over-year gain of 10.5 percent in market value, says David Seiders, chief economist of the National Association of Home Builders.

3. New home inventories of unsold homes fell 1.9% to 557,000, a 6.4-month supply in September compared to an inventory peak of 7.2 months in July. While inventories of unsold homes are up 14.4% for the year, the median sales price dropped 9.7 percent in September to $217,100. While that's the largest percentage decline in price since December 1970.

4. Unemployment is below 4.6 percent, a cyclical low equivalent to rates in May and June.

5. According to the Mortgage Bankers Association, fixed-rate mortgages should stay at about 6.3% to 6.4% through 2006. Rates are expected to rise to about 6.7% by the end of 2007 and to about 6.8% by the end of 2008.

6. David Lereah, chief economist of the National Association of Realtors says, "The worst is behind us as far as a market correction. When consumers recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the market."

7. C.A.R. President Vince Malta agrees. "Unsold inventory (in California) is holding steady, and is close to the long-term historic average typical of a more 'normal' market."

Bottom line? If a trough is near, inventory levels will shrink, prices will rise, and so will mortgage interest rates. If pundits believe that the market will reignite in the spring, the time to buy is now.

Published: October 26, 2006

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