For now, the slowdown in the US housing market looks to be a decline in pace of sales more than in prices.
That would be good news for both homeowners and the US economy, which is attempting a difficult feat: to maintain solid growth, even as the Federal Reserve douses inflationary pressures with the cold water of interest-rate hikes.
The number of previously owned homes sold in April fell to a level 5.7 percent lower than the pace a year ago, according to a report from the National Association of Realtors Thursday. Sales of newly built homes are also down 5.7 percent from a year ago, the US Census Bureau and Commerce Department reported Wednesday.
Yet analysts generally predict that home prices are in a plateau phase, not poised for a plunge.
"We aren't expecting price declines on a national level," although home values could fall in some overheated markets, says Phillip Neuhart, an economic analyst at Wachovia Corp., a banking and investment firm in Charlotte, N.C. "The housing market for now is slowing, not crashing."
As "for sale" signs stay up longer, some momentum has shifted from sellers to buyers. That's already showing up in prices, albeit in a muted way.
New homes were selling last month at prices just 0.9 percent higher than a year before, a sharp slowdown from the double-digit price gains of the housing boom.
The housing slowdown comes as the economy is navigating a transition toward possibly slower growth.
The Commerce Department reported Thursday that the nation's gross domestic product (GDP) rose 5.3 percent in this year's first quarter. That was an upward revision of a previously reported pace of 4.8 percent for the quarter, but it fell short of expectations. Economists had called for the annualized rate of GDP growth to hit 5.8 percent, based in part on stronger exports of US goods.
For the rest of the year, many economists expect the economy to grow at a more typical pace of about 3.5 percent. Housing will be a central factor.
Construction, real estate services, and the consumer cash-flow from rising home values have helped fuel the current economic expansion, which began late in 2001.
Now, as mortgage rates have risen over the past year, it appears clear the economy will get less support from real estate.
The question is how big housing's drag on growth will become.
Interest rates could rise further, as the Federal Reserve guards against inflation that in some recent reports appears to be rising.
"Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector," David Lereah, chief economist at the National Association of Realtors (NAR), said in releasing Thursday's report on existing-home sales.
Some observers suggest the Fed may be nearing an end to its campaign of steering interest rates upward toward what it believes to be a "neutral" (noninflationary) level. But Mr. Neuhart of Wachovia says the housing sector could come in for a harder landing if mortgage rates rise more than expected.
And in the past, of 10 slowdowns in home building since 1959, seven have preceded broader recessions for the economy as a whole. But there was a significant lag time - often about 20 months - between the moment when construction started to ebb and when the economy entered recession, according to research by Merrill Lynch.
Most economists aren't forecasting recession for the US economy next year, but the prospect of more interest-rate hikes raises that risk.
"We think it's a pretty safe assumption that the housing market has already entered into a recession," Merrill Lynch economists wrote in a recent analysis.
Builders are starting new homes at a pace that has plunged at an annualized rate of 56 percent in the past three months, they note. That's similar to what occurred early in 1991, when the economy was in recession.
Still, while housing starts are dropping and the backlog of homes for sale has reached a six-month supply, its highest level since 1998, most analysts say prices will flatten out, not crash. Typically it would take a recession for median home values to fall nationwide.
Even in red-hot California, real estate analyst Michael Ela doesn't see prices coming down yet. "What we are seeing is longer times on the market," says Mr. Ela, president of HomeSmart Reports in San Juan Capistrano, Calif. "Sellers aren't quite ready to lower prices yet."