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residential real estate is tied closely to the cost of borrowing (interest rates) and true demand (indicated by areas of increasing population vs declining population).
in coastal markets (notably california) it is also driven up by foreign investment, climate, and value of the dollar vs foreign currency.
the market is always in a state of correction, and always will be unless you have rent control which artificially deflates values of investment property.
true values will begin to soften because demand will begin to soften right about now. prime just went up a quarter point this past week, we're coming into fall so families now have the kids settled in schools and are less apt to move. new home starts are beginning to decline in most areas of the usa.
but a couple things will prevent a precipitous decline in prices over the next 18 months---IMO we will see a fairly large inflationary trend due to foreign conflicts, high energy cost, trade deficit, and bush's no tax plan. this will cause the treasury to print money like crazy to pay the bills---and because of inflationary pressures in the coming years people that are buying now still won't get hurt because they will be paying off loans with inflated dollars.
so get in now if you can, but be careful with short term ARMs.
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