SALEM, Ore. (CNN/Money) Ė Warning: Headlines about the housing market may make your head spin with mixed messages.
On Wednesday, for example, the Census Bureau reported that new home sales in September were far better than economists had predicted. This came on the heels of an equally upbeat report, this one for existing homes, from the National Association of Realtors.
But an article in the Orange County Register the same day warned that researchers at Cal State Fullerton expect prices in the Los Angeles area county to fall as much as 20 percent in the next two years. In Boston, there are more houses on the market today than at any time in the last five years, according to an article that ran in The Boston Globe on Tuesday.
As we reported in August, the supply of houses on the market in Las Vegas is several times what it was earlier this year, and sellers are having to rethink their asking price.
Or are they? An article in the Las Vegas Review-Journal last week ran with the headline "Home prices on rise."
Confused? You're not alone. Even economists admit that they have thrown up their hands.
"I've given up trying to guess where interest rates will go," said David Stiff, a senior economist with Fiserv CSW, a firm that tracks and forecasts housing prices.
While housing markets are influenced by a number of factors, including the supply of houses for sale, the strength of the local economy and demographic trends, mortgage rates are a key bellwether.
They are also nearly impossible to predict, according to Susan Wachter, a professor of real estate finance at the Wharton School of the University of Pennsylvania.
"Most people were projecting that interest rates would go up and the housing market would be hit," said Wachter. "But the dog didn't bark. Rates didn't go up." Indeed, the Freddie Mac survey of mortgage rates has shown rates falling steadily since May.
Add to the confusion a war in Iraq, a presidential election and a dubious economic recovery, and it's easy to see why there are mixed messages about the housing market.
|†* Oct. 04 - Oct. 05|
But, that's only half of the story.
"I've been studying the market for ten years, and I'm always amazed by what a diversified market this is," said Delores Conway, director of the Casden Real Estate Economics Forecast at the University of Southern California Lusk Center for Real Estate.
The strength or weakness of a housing market varies not just from one region to the next, but within any give metro. In Los Angeles, she noted, prices seem to be retreating in million-dollar neighborhoods, but there is still strong demand in areas where homes are selling for less than $500,000.
"The averages hide all of the variations," she explained. "It's like saying I saw mountains and valleys in Switzerland, so it must be flat."
The same can be said of different neighborhoods or types of housing, she said. Prices for big houses in the suburbs may be stagnant even while prices for lofts in an up-and-coming part of town are doubling.
Of course, there's still some value in looking at housing price indexes and forecasts, if only to satisfy your curiosity.
Reading the tea leaves for '05 and beyond
This is actually a very good economy for housing, said Wachter. At the same time mortgage rates remain low, the economy seems to be improving.
"This is the best we could have hoped for," she added.
Meanwhile, experts don't expect higher mortgage rates to take buyers by surprise. "Greenspan has indicated that the Fed will be increasing rates at a measured pace, that means slow and steady," said Conway. "That gives the housing market time to digest any price gains."
In California, where Conway focuses most of her attention, there may be some slowing in price appreciation. "But we don't expect the magnitude of what we saw in the early 1990s, when high rates and rising unemployment had a doubling effect," she added. "The key is employment."
The long-term demographics for housing are encouraging, as well. "The important thing is that the Echo Boomers are coming into home ownership years," said Wachter, referring to the children of the Baby Boomers. "They will be moving into the market and adding stability."
Looking at individual markets, Fiserv CSW expects that over the next 12 months home prices will continue to appreciate in most markets, albeit at a slower pace.
There are even some markets that could see stronger growth in the coming year, among them Atlanta, Cincinnati, Cleveland, Denver, Detroit and Nashville.
Washington D.C. and Miami, meanwhile, may take some of the spotlight from Southern California real estate. Fiserv CSW is forecasting that home prices will rise 16.9 percent in D.C. and 13.8 percent in Miami in the next 12 months. They expect prices in Los Angeles to increase 11.5 percent.
"Some markets still seem overpriced based on fundamentals, and [in those places] we expect prices to decline or taper off," said Wachter.
Prices have already softened in some of those high-priced markets. Or so it would seem.