There's no index to track fear, but that could be the unspoken reason why the National Association of Realtors is expecting flat sales until the middle of the year.
After all, the trade organization doesn't expect the economy to grow in the first half of the year. Inflation is expected to be higher at 3.4 percent, and unemployment will rise to 5.4 percent.
Those aren't factors that put people in a buying mood, but all that could change by the second half of the year when economic stimulus packages begin to take effect.
The February Pending Home Sales Index which tracks purchase contracts slipped nearly two percent (1.9 percent) to 84.6, a 21.4 percent drop from February 2007's index of 107.6. Lower selling prices of approximately 1.4 percent will result in a new median home price of about $215,800.
But lower prices mean rising affordability, and that coupled with liquidity improvements in the jumbo loan market means sales could recover, particularly in high-cost areas like California.
The reason? Pent-up demand. Inflation-adjusted disposable personal income is likely to grow 1.2 percent this year, so consumers have more money, they just aren't spending it. They want to know how much gas, milk and bread are going to cost before they sign a purchase contract.
As homebuyers have sat on the sidelines, they have watched near record low interest rates come and go. They've seen homes continue to sell, with nearly one-third of homes going to investors and second-home buyers. And homeowners have dropped prices -- not the 20 percent that some pundits are seeking, but they've dropped enough to turn the clock back to the boom days of 2004. Meanwhile, mortgage interest rates are still attractive at under 6 percent for fixed-rate, good credit loans.
Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure, says Lawrence Yun, chief economist for the NAR.
And that's the big IF. Inflation could squash the housing recovery, at least for the short term. Buyers with cash, however, will always be able to pick up a good deal.