Home prices to fall in 2007

It seems like every day we are hearing more and more ominous news out of the housing industry. It wasn't that long ago that the practice of flipping real estate for a quick buck was not only widespread, but also had a very high probability for success. Not any longer, and today the National Association of Realtors said that for the first time in their history of tracking home values, 2007 will probably see a drop in home prices.

According to the NAR home prices will more than likely see a drop of around 1% this year. To put that into a dollar figure, that would put the average for an existing single family home at $219,800. This really shouldn't come as a surprise to any of our readers. Back on April 24, we took a look at March sales, and noticed that March represented the 8th straight month of falling home prices. The current 8 month streak represents the longest stretch ever for falling prices, so seeing an overall drop for all of 2007 really shouldn't shock any of us.

If we try hard enough, I am sure we can all remember the glory days a couple years ago. It seemed like every other week I was hearing someone telling me about the $40 or $50,000 they had just made flipping their house. This just is not something you would even dream of hearing in today's world.

Lawrence Yun, a senior economist for NAR, said speculative real estate investors have completely left the market. These were the guys responsible for pushing prices higher and higher, and without them in there to keep the prices propped up, we are quickly seeing the market fall apart.

Should homeowners freak out and consider their homes a losing investment? Am I suggesting people avoid buying a home? Not at all.

In the long run home ownership will continue to be a good way to create income, but things are going back to the way they used to be, real estate is once again turning into a long term investment, you just have to remember to treat it like one.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor'sObserver.