By Matthew Strozier
Wall Street Journal

Dire news about falling home prices abounds, but a new poll finds that a surprising percentage of potential buyers and sellers believe that the market is headed for an upswing.

Sixty-eight percent of respondents in a survey released this morning by Prudential Real Estate and Relocation Services, Inc., said the market and property values will recover in the next year or two. This is up from last April, when 47 percent of respondents expected that house prices would rise. And perhaps most surprising of all, 86 percent of Americans in the survey said that real estate is a good investment despite the volatility of recent years.

Huh?

Didn't we just report that the number of Americans who believe that buying a home is a safe investment continues to fall? In that survey, conducted by Fannie Mae, just 64% of respondents said they believe a home is a safe investment, down from 70% a year ago and 83% in December 2003.

The explanation could partly be that some buyers are feeling emboldened while sellers are wary. "What they are clearly seeing, from a buying perspective, this is an opportunity of a lifetime," said James Mallozzi, chief executive of Prudential Real Estate and Relocation Services. But while it may be a good time to get in, consumers "may have to be realistic about the price of getting out if they are an existing homeowner," he added. Still, Prudential said that 78 percent of people who sold in the last year were satisfied. (The survey, conducted Jan. 20-27, was of 1,253 Americans between 25 and 64 who were either buyers or sellers; the margin of error was plus or minus 3%.)

Prudential Real Estate is a brokerage franchise, and sunny outlooks are certainly expected among agents. But it could also be that after falling for so long, people can't help but hope that the worst is over. Even in the Fannie Mae survey, the share of respondents who believe home prices will stay flat or increase over the next year (78%) rose slightly from one year ago (73%).

Still, economists are skeptical about prices rising this year or next, although they say they could stop falling. "The probability of them being higher in two years than they are today? I'd say pretty close to zero," said Dean Baker, co-director of the left-leaning think tank Center for Economic and Policy Research in Washington, D.C. He expects prices to fall this year a total of 10 percent and level off next year.

Christopher Thornberg, an economist at Beacon Economics in California, agreed it's a good time to buy given the market, but said people shouldn't be looking for price appreciation. (Thornberg was one of the early economists to warn of the housing bubble.) "I would argue that, more likely than anything else, over the next couple of years we are going to be in this neutral zone where not much happens."