Mark Zandi, chief economist at Moody's Economy.com said that rising interest rates and sky-high home prices have cooled real-estate investment, particularly in high-end markets in some juiced-up parts of the country where speculation was most rampant.

It shows that the record low interest rates and speculators that once drove prices higher are gone. Observers expect housing prices to stagnate or decline slightly, though a steep crash for housing prices is unlikely. Wachovia last week cut its rating on builders including Pulte Homes Inc., KB Home and DR Horton Inc., citing a sharper more rapid downturn in the market than expected.

Buyers in some cooling markets know that they are losing control over the market. Keith Gumbinger vice president at HSH Associates, which publishes consumer loan information, stated that home prices have risen to where buyers can't afford to buy.

According to the National Association of Realtors, the national median existing home price was $223,000 in April. While that was a 4.2 % increase from April 2005, the organization predicts that prices this year will rise only 0.8 %.

Most observers say housing prices will only slide dramatically if the Federal Reserve continues to raise interest rates. The Fed's target short-term rate is currently 5 %. Many homeowners will have trouble making payments and will see significant mortgage credit problems develop.

Ricchio at Zacks Investment Research even said that the higher mortgage payment might lead some overstretched owners to default on payments, adding supply to an already glutted market.

By M. Sese
http://realestatepress.org