The Real Estate Deal

Look at a bar chart of home sales or year-to-year price changes.

Like buildings in lower Manhattan, the bars rise gradually, peak at the edge, and then drop straight into the Hudson. Recently, there's been big drops in existing and new-home sales.

The frothy double-digit price environment you enjoyed (or dreaded, if you were a left-out buyer) has gone the way of silent movies.

On the surface, it's not a very stable or encouraging environment to buy residential real estate. Or is it?

Actually, I believe things have bottomed for the most part. What happened last year looks like a natural correction, a response to overheated buying and speculation made worse by a modest interest rate rise.

This year, I expect, as do most economists, steady interest rates. Just as important, new-home construction has slowed markedly.

That's encouraging, as the lack of new supply helps the market for what already exists. Unlike previous downturns, builders were able to turn off the spigot pretty fast. That's a good thing.

Clearly, though, some markets are faring better than others.

In fact, the latest forecasts offered by Moody's Economy.com call for improving prices in some two-thirds of the 100 largest real estate markets. These markets are mainly in the Midwest and South.

As you might expect, prices there behaved themselves during the boom, driven less by speculation and "irrational exuberance," so there's room there to move forward.

Click here for the video version of this story from Jennifer Openshaw.