I wish I knew the answer to that question! But two things are becoming fairly clear, prices will not fall to zero, and they've already fallen to a point where there's far less risk in making a purchase decision than there was two years ago. One key factor is now on the minds of our buying public....Affordability.

The median priced home in Sacramento County has fallen from its $387,000 high in August of 2005 to approximately $243,000 as of February2008. That represents a 37% decrease since the high!  Over the same period interest rates have risen from  5.25% for a 30 fixed mortgage to approximately 6.25% today.  Now that may not sound like much (only one percentage point) but it represents an increase in mortage payments of 18.6% since the high.  Interesting to note that comparing the home price decline percentages, to the mortgage payment increases, shows that over half the price decline has been offset by higher financing costs.

Buyers must juggle prices today against interest rates they'll pay to secure a mortgage. This is particularly true for the first time home buyer or those transferring in from areas with lower priced properties. While prices could continue to decline, rates would have to march inline with price reductions in order for affordability to remain the same. The buying public has gotten used to low mortgage rates at a time when rates are now tending to rise.

No one knows if rates will continue to rise but for those interested, please take a look at my page titled "Interest Rate Power!!!" for a brief history on 30 year mortgage rates spanning half a century. It's interesting to note that average 30 year mortgage rates are higher than 8% over that 50 year period.