The Urban Land Institute sent me its Emerging

The Urban Land Institute sent me its Emerging Trends report for 2007 last week, and three words immediately caught my eye: "Nothing lasts forever."

The report was referring specifically to the U.S. commercial and multifamily real estate investment market, which will slow down in 2007 after reaching a 10-year peak in 2006, comfortably producing average to slightly above-average investment returns.

"Nothing lasts forever."

It's amazing how the average person is reacting to the end of the boom and the return to the normal market. Despite all of the dire predictions about bubbles and deflating prices, a recent AP-AOL News poll found at least half of all American believe their houses will increase in value in the next two years.

Real estate agents report that sellers still don't get that it is now a buyer's market in most areas of the country. They are still trying to get 10 percent more than the house down the street brought last year; its a, "And my house is much better than theirs, right down to the white shag carpets" mentality.

Listing agents are still doing big business, even though the experts suggest that if people don't have to sell right now, they shouldn't, because it just adds to inventory and -- I heard this from a veteran real estate agent the other day -- "buyers have so many choices they are having a harder time deciding."

The housing economists are assuring me that the residential market will be climbing back to some sort of equilibrium soon. The economists outside of housing aren't so confident, but let me say one thing: The current market isn't as dire as the one we had to endure between the late 1980s and mid-1990s, when we were truly experiencing a reaction to overbuilding -- especially in the suburban condo market in non-resort areas -- historically high interest rates and inflated prices of the early and mid-1980s.

Allan Domb, the "Condo King" of downtown Philadelphia and a nationally known condominium expert, says that in his market, housing prices actually declined between 1987 and 1990 and did not start to increase until 1997.

Philadelphia is one of the residential real estate bright spots in the country: The median price continues to rise -- predictions of 3.5 to 5 percent in the next two years are common -- because the region's housing stock was so undervalued for so long that it will take years to catch up to other older big cities, such as Boston and New York.

Anyway, from the AP-AOL poll results, from anecdotal evidence from real estate agents, and from my own observations, at least half of us don't care what the economists say and will continue to do what we want with our houses.

While I don't believe one tiny street in a town of 11,000 qualifies as a microcosm, of the 14 single-family detached houses on mine, four are for sale for prices ranging from $374,000 to $404,900.

One seller moved when his house went on the market eight months ago, and there are still no buyers, and no one coming for open houses. Another seller has bought a house closer to his job (a three-hour commute); a third seller has lost her job and is concerned that she cannot afford the taxes; and the fourth is going through a mid-life crisis and wants a change.

The "crisis" seller decided to look around the area to see what other sellers were doing to market their properties. She went to a Sunday open house in a neighboring town, where the owner had decided to remain against the listing agent's wishes and accompanied my neighbor through the house.

"It smelled of mold and dog poop," the neighbor said, but the clincher was when she asked what was behind the closed door on the second floor.

"Oh, that's the master bedroom," the owner said, and opened the door, where his wife was still asleep. "Want to see the master bathroom?" he asked.

"If I can do everything just the opposite of that guy, I may have a chance selling mine," my neighbor said.

My readers who are listing their houses look to me for reassurance that they are doing the right thing, and other than reminding them that the price has to be right, I can't offer any. Most people have their own ideas, so my counsel would go unheeded anyway.

For instance, should you bury a statue of St. Joseph upside down to sell your house?

I was dozing on the train home last evening. Behind me was a 30ish woman on her cellphone.

"I bought the statue of St. Joseph and I think you have to bury him," she said. "It came with instructions, and I think that if I follow them, the house will sell quickly."

The side of the conversation I could hear continued:

"My friend's father came over to look at the furnace, but he couldn't hear the noise," she said. "He said it probably was the motor and he'd replace it for $200. But if he didn't, I don't think the home inspector would find it so I won't say anything."

Failure to disclose. Some things do last forever

Here it is the beginning of October, and so far 2005 has been an absolute loser for the folks on Wall Street. While business columnists, Fed officials and stock market analysts prattle on about the potential for a housing bubble, the stock market has quietly settled into a trough. On January 3rd the Dow Jones Industrial Average closed at 10,729.43. As of the close on October 6th, the index was at 10,287.10 This is a drop of some 442.33 points (4.1225 percent), but the real decline is more significant. While Wall Street has been falling, inflation has been at work devaluing the dollar. In the past year, the Bureau of Labor Statistics reports that the Consumer Price Index increased 3.6 percent. Combine the drop on Wall Street with reduced buying power and real stock market losses are significant, even -- forgive me -- bubble-like. Meanwhile, the real estate market churns along, defying financial gravity and common sense. The National Association of Realtors reports that existing home prices rose 15.8 percent in the past year. The typical existing home now costs $220,000.

To some extent real estate prices are rising because we are not measuring like items. A house may be a house, but today's homes seem to grow almost monthly and one reason they cost more is that they contain a greater volume of space than earlier models. The National Association of Home Builders says that an average new home built in 2004 had 2,349 square feet -- up almost 200 square feet when compared with homes built as recently as 1997. The catch is that real estate and securities are all part of the same economy. In the best of worlds, at least realistically, you would like to see values on both Wall Street and Elm Street increase at a level above the rate of inflation to create additional buying power and thus real wealth. Alternatively, you don't want prices to rise too fast and spur inflation. How home prices have risen is something economic historians will one day explain. For now, it's hard to understand how prices have soared while household earnings have declined. According to The New York Times, "the total income of Americans in 2003, adjusted for inflation, was 4 percent smaller than in 1999." (See: Income Down From 1999, Tax Data Show, September 28, 2005)

One of the most remarkable areas of real estate speculation now concerns the areas hit by Hurricanes Katrina and Rita. NBC News reports that "it's widely believed here that developers will soon buy up whole blocks of destroyed homes to make room for lucrative casinos, condos and entertainment complexes. But in damaged low-income neighborhoods, renters fear they will be edged out for good." If prices on Wall Street today reflect future economic prospects, then what is it that real estate pricing represents? Why is one measure rising while the other is settling like loose feathers in a pillow factory? Part of the answer, I suspect, concerns the psychological value of real estate. A home is more than an investment, it's that secure place away from the world's troubles -- everything from traffic congestion to world events. Thus people are willing to put more into a home because it is, in a sense, more than housing.

That said, if we have generally increasing home prices and generally decreasing wages, someone is being left out. Reduced values on Wall Street also mean some people will have fewer dollars for down payments. The comforts of home can only go so far and in an era when the cost of heating and cooling is soaring, barn-like houses with more interior space than Carnegie Hall are destined to become the SUVs of real estate. What to do? If you have an ARM or one of the loony high-risk loans with low payments now and vastly higher payments tomorrow, take a look at fixed-rate mortgages. And if you're in the market for a home, think modest -- such properties are apt to be most in demand once the financial dust settles.