The National Association of Realtors has its tally for 2007. While it was the fifth highest sales on record, 2007 also was the first in over 40 years that home prices and sales went down instead of up.

Does that mean housing's in for a rough winter? Maybe not. Sometimes bad news can be good.

Home sales slipped 2.2 percent in December, bringing the total number of transactions in 2007 to 12.8 percent (5,652,000) below 2006 (6,478,000.)

One reason was that mortgage interest rates were much higher for non-conforming loans such as the jumbo market. That impacted homes over $500,000 which dropped to 12.4 percent of all transactions from 14.2 percent in 2006.

What that means is lower-priced markets and homes were better able to hold the line on prices. In fact, for all of 2007, home values went down only 1.4 percent to $218,900 from $221,900 in 2006. That's a difference of $3,000.

But here's an interesting contradiction. Total housing inventory fell 7.4 percent at the end of December to 3.91 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace. That's down from a 10.1-month supply in November.

How can you have falling sales and reduced inventories at the same time?

Housing sales typically fall in December, but this time, the answer is interest rates. Rates on conventional loans began a significant drop in December. When rates go down there is typically a burst of refinancing activity and purchase applications. Refinancings went up every week in December as interest rates dropped, taking a number of homes for sale or potentially for sale, off the market.

Here are two reasons why Realty Times predicts an active first quarter for housing.

Since conventional rates may not have much further to slide, mortgage activity will increase significantly. Mortgage interest rates have already dropped over 3/4 of a point, which is equivalent to about $150 or more in monthly payments for most conventional homeowners.

Meanwhile, renting is becoming less attractive. According to Realty DataTrust, the average nationwide apartment rent increased 1.9% in 2007 and vacancies decreased.

Higher rents, lower interest rates, and lower housing inventories will convince buyers it's time to act.

Published: January 25, 2008

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