Housing starts fall, confusion rises
The experts are putting out a lot of mixed signals about the housing market - so should you sell or not?
By Ellen McGirt, Fortune senior writer

(Fortune Magazine) -- Anyone who reads the newspaper knows that these are interesting times for real estate watchers. Day after day more grim statistics emerge: Housing starts fell 2.5% in July. Giant homebuilder KB Home (Charts) says its third-quarter orders are down 43%. The National Association of Home Builders reports that its index of builder optimism is at its lowest level in 15 years. What to make, then, of last month's release from the Office of Federal Housing Enterprise Oversight, which shows that nationwide, home prices rose about 10% from spring 2005 to spring 2006?

In this case, the headline doesn't tell the story. The real import of the data is that the pace of increases is slowing drastically. "The decline in the quarterly rate over the past year is the sharpest since the beginning of OFHEO's House Price Index (HPI) in 1975," the release noted.

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The slowdown was particularly acute in what's been one of the nation's hottest markets, Arizona. While prices rose 24% for the 12-month period, they climbed just 2.9% in the most recent quarter.

If you're finding it hard to make sense of the conflicting signals on the housing market, you're not alone. Summing up the report, OFHEO director James Lockhart concluded, "These data are a strong indication that the housing market is cooling in a very significant way. Indeed, the deceleration appears in almost every region of the country."

But in an interview with Fortune, OFHEO chief economist Patrick Lawler seemed to take a different tack. "The big theme is that prices are still going up in most of the country," he says. "Housing is different from stocks. We wouldn't expect huge drops."

What does it mean for you? If you want to sell your house, local conditions mean much more than national stats. But there's little point in holding out for the kinds of prices your neighbors were getting last year. In the current environment, chances are that the longer you wait to sell, the less money you'll get. But if you've owned your home more than a year or two, chances are also good you'll end up with a nice profit.

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