At the moment (late 2009), it seems that real estate values may have stopped falling finally. Are they headed back up now, or are we in for a period of stable prices that barely move for years? Or are they going to start dropping again? I suspect we are in a slow recovery, but let's look at some of the things that determine prices. Watch these factors and you can make your own predictions.

Supply

The state of housing supply, like many other factors, is not the same in all parts of the country. Some areas have enough empty homes to meet demand for a long time to come. In other areas the building boom never came, and so the supply is more in line with demand.

In general there is an over-supply in the country still. Watch as that is eaten up and at some point prices may spike upwards, since it will take some time for builders to realize it is safe to build a few homes as speculations again. If you can't find the statistics you need easily for your area, you can call the local board of realtors and ask how many homes are sold each month. Then divide that into the number of MLS listing to see if the supply is below six months yet (this is a more normal supply).

The foreclosure rate will also affect the supply going forward. We may still have an increasing rate of foreclosures due to loans that are due to adjust their interest rates. That will put more homes on the market, and because banks need to sell fast they will sell cheap, potentially lowering the prices of all real estate. When foreclosures start declining prices may rebound.

Demand

One of the things that has affected demand for real estate is the first time home buyers tax credit. It has been an $8,000 motivation to buy, but it will likely have expired by the time you read this. That means we might see less demand going forward.

Interest rates have also been near historic lows, which always helps demand. If they rise much there will be millions of potential buyers who will qualify for tens of thousands of dollars less on a mortgage loan. That might push demand down, especially for homes that are above average in price.

Immigration, both legal and otherwise, creates demand for housing. During the boom years even illegal immigrants were able to get home loans, and those that rented single family homes contributed to demand for those through the investment purchases of their landlords. Immigration has slowed, and due to the recession many illegal immigrants have even returned to their home countries. If you see immigration levels returning to normal that will be a good sign for real estate values.

Unemployment is still rising as I write this, and that dampens demand, as well as increasing supply due to foreclosures. When total employment in the country starts rising again that will be a good sign for home prices. Watch your local unemployment figures as well, since they may change before the rest of the nation (or afterwards, for that matter).

Inflation

In addition to raw supply and demand issues, there is the matter of inflation. Although it is not yet showing in prices of real estate or even most other goods, that will change. The government is creating money at a historic rate, and as soon as the recession is clearly over and employment starts to rise, we can expect that to push the prices of almost everything up.

Watch the things outlined here to predict real estate values going forward. In the mean time, consider the current slump to be a huge sale for homes and other properties.

Author's Bio: 

Copyright Steve Gillman. To see a photo of the house we bought for $17,500, get a free ebook on how to buy Cheap Homes, and a free real estate investing course, visit: http://www.HousesUnderFiftyThousand.com