There are so many crosscurrents in the market right now, it’s hard to get a good read on what the next move will be. On the one hand, inventory remains at high levels, sales velocity is down, prices have definitely come down and the local rate of withdrawn & expired listings is a gargantuan 35%. On the other hand, we still have virtually full employment, mortgage rates are low (and going lower) and the local inventory- while large- has not grown since July. And, a person far smarter than I, Alan Greenspan, has pronounced the worst of the realty downturn to be over (caveat: he’s speaking in broad, national terms…remember, all real estate is local).

From an anecdotal, unscientific standpoint, I’m seeing motivated sellers achieve sales when they’re positioning around 8-10% off 2005 market highs for detached, single-family housing. Unfortunately, the pain is greater for condos/townhomes: they are selling at closer to 17-20% off those ‘05 highs, and the inventory is still painfully swollen.

Right now, it appears as though the Spring market (roughly defined as the period of time between the week after the Super Bowl and Memorial Day) will tell the story for all of 2007. If many sellers who were part of the 35% expired/withdrawn set in 2006 re-enter (along with their hopes of inflated prices) during the Spring market, inventory can be expected to swell…and prices may drop further.

If, however, many frustrated sellers from 2006 decide to stay put, the market- and prices- could stabilize at current levels. Then, the story of 2007 will be one of working down inventory built during 2006. It’ll be a boring- but viable- market.

There are also two “wild cards” that need to be thrown into the mix: 1) NJ lis pendens (initial foreclosure paperwork) filings are up 44% over this time last year; and 2) mortgage rates may continue to fall in 2007, as the Fed could be forced to lower rates due to economic contraction. If even a fraction of the owners subject to foreclosure end up having to sell, it will have a major impact on inventory…and prices. However, if prevailing mortgage rates decline further, they may incentivize “fence-sitting” buyers to pull the trigger.

Which path does the market take? Who knows. There are two paths- pretty clearly defined- and compelling arguments for both.