The real estate market is very unpredictable. You may be able to assume that prices will rise but you will not be able to ascertain how high or you might have a hunch that sales will increase to support a seller’s market but you will not know how fast.

In fact, both of these scenarios are untrue in the current market, as prices are declining (or at least appreciating at a slower rate) and sales are also declining. But, once again, the real question is how fast, how long and how much?

Luigi Frascati’s article, “Soft But Not Dead,” posted on ezinearticles.com, provides some information that may be helpful to a prospective buyer or seller in this slow or “soft” market.

The Office of Federal Housing Enterprise Oversight (OFHEO) reported the average price of a house rose by only 1.2 percent in the second quarter of 2006, which marked the smallest price gain since 1999, although it still was a gain. 2006 has experienced the sharpest slowdown in annual growth rate since the OFHEO began to track the housing price index in 1975. However, average prices are still up 10.1 percent from last year’s second quarter mark.

“This is much stronger than the index published by the National Association of Realtors, which showed a rise of only 0.9 percent in the year to July. Economic analysts generally speaking prefer the OFHEO index, since it is thought to be more reliable because it tracks price changes in successive sales of the same houses over time and therefore, unlike the NAR index, is not distorted by a shift in the mix of sales to cheaper homes.”

The term “stickiness” is commonly used in economics to refer to a situation in which the variable is resistant to change. Therefore, price stickiness results when housing and interest prices are high even when demand is low.

“For example, nominal asking prices are often said to be sticky. Market forces may reduce the real value of interests in land, but prices will tend to remain at previous levels. Stickiness normally applies in one direction, which means that a variable that is ‘sticky downward’ will be reluctant to drop even if market conditions dictate that it should.”

As an overall result, price stickiness is responsible for the confusion that exists between nominal and real values and thus creates what is known as the “Money Illusion.” This refers to the inclination of people to think of prices in nominal, rather than real, terms. According to the article, “Money Illusion” was coined by John Maynard Keynes in the early twentieth century.

“Money illusion does influence people perceptions of outcomes. Experiments have shown that people generally perceive a 2 percent cut in nominal income as unfair, but see a 2 percent rise in nominal income where there is 4 percent inflation as fair, despite the fact that the two situations are almost rational equivalents. The same happens in Real Estate, where the trend is for asking prices to remain high or even increase when selling prices are dropping.”

So be careful when trying to determine and decipher the real estate market. There are a lot of sticky terms in the real estate world that may not follow common patterns of the current market. Trying to predict the market is a difficult task in itself, but trying to do so without the proper information is next to impossible.