Is a Flat Housing Market Upon Us?

After being in freefall for several years, there are signs that the housing market may have finally reached a point where prices will be flat for some time to come. The recently released Standard & Poor’s/Case-Shiller Home Price index showed that while housing prices continued to decline nationally in the fourth quarter of last year, the declines may be soon coming to an end.

The widely respected Case-Shiller index reported a price fall of 2.5% in Q4 2009, as compared with the same period for 2008. Moreover, prices fell only 1.1% from the third to the fourth quarters last year. While still a decline, the number was a marked improvement from previous quarters. The Case-Shiller index tracks housing prices in 20 cities and nine census divisions across the United States.

Housing analysts say that the recent numbers could indicate that housing prices will continue small declines or will be flat for the next one to five years. However, several unknowns make it especially difficult to forecast house price movements. Primary among the unknowns is the Federal Reserve’s plan to stop buying mortgage-backed securities on March 31.

In addition, mortgage rates could rise as the Fed tightens the money supply in response to economic growth and possible inflation. To top off the uncertainties, the federal home-buyers tax credit is scheduled to expire on April 30th.

How all these factors will impact the housing market over both the short and long term remains to be seen. While some analysts fear a return to rapidly falling home prices, others say an improving economy and job situation could bolster the market as federal support is pulled away.