Are you in a normal market? That depends on what's par for the course in your area. The housing boom has gone on for so long, that you may not know that normal is homes that stay on the market nearly 6 months, and interest rates are about 8 percent.
The National Association of Realtors says 2006 will be the year that housing markets return to normal, but what exactly does that mean?
It means a return to normal rates of appreciation for the area.
Historically speaking, housing prices have barely beaten inflation. Over the last few decades, with few exceptions, inflation has risen 3.5 annually. So have home prices, but they've risen about 4.5 annually, giving a modest return to homeowners over time. As they paid down their mortgage loans, they built equity.
But the housing markets of the last few years have been anything but normal. Nationally, we've seen double digit appreciation for the last five years. Your town may not be so red hot, but areas like coastal Florida and California have seen as much as 25 percent gains annually or more.
In 2006, experts are calling for more balance in the rate of price growth, says the NAR, as well as more balance between buyers and sellers in local markets.
The NAR believes that when all the numbers are in, 2005 will be another record-setting year for price growth. But, more modest gains are healthy, says David Lereah, NAR's chief economist. "We don't need to break a record every year for the housing market to be good -- in fact, cooling sales are necessary for the long-term health of this vital sector. A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong."
The advantage to a more stable market is that buyers can take advantage of increasing inventories to make offers.
What is not normal is continuing low interest rates hovering at near record lows. This gives an incentive to buyers to take action now, which could keep the housing market on the overstimulated side of "normal." Even so, Lereah says, "A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling." He continues, "Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year." The 30-year fixed-rate mortgage is likely to trend up gradually to 6.7 percent during the second half of the year. "This will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace," Lereah adds.
So what will the new normal look like? While home prices jumped nearly 13 percent in 2005, they are only predicted to rise a little over 5 percent in 2006. New construction should increase 6 percent.
The Consumer Price Index is projected to rise 3.4 percent for 2005 and 3.0 percent in 2006. That means that price gains for housing, while not red-hot, will at least still beat historical gains by more than one to two percent.
Realty Times advises that record low interest rates, coupled with more choice for home buyers, is an irresistible buying signal. Rather than buying anything that comes on the market, you can get what you want and pay near record low finance rates, too. 
