Recently, we came across a headline in a local Chicago news outlet about an expensive home that had been for sale for a while. It read: “Spec house sells for two-thirds original list price.” Then we saw another news story about a home that had just sold for less than what it sold for in 1988. A third home sold for less than the price the builder paid for the lot.

There’s a lot of positive news about real estate these days: Mortgage rates are nearly at record lows, home prices are up significantly in many parts of the country over the past 10 years, and delinquency rates (the number of people making late mortgage payments) are near an 18-year low. Yet in some parts of the country, real estate prices are lower now than they were five, 10, 15 or, in some cases, 20 years ago.

Certainly, in the Chicago area, there are places where all types of homes are selling for far less now than they were before the Great Recession. Sam recently represented a buyer who purchased a home that sold for $6 million a number of years ago but recently sold for $4 million.

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Yes, high-end home sales have been slowing for a while in greater Chicago. But now, homes that are priced around $400,000 to $600,000 in some Chicago-area neighborhoods are selling for up to 30 percent less than the owners paid just five or six years ago.

Is it just Chicago? We’re hearing anecdotal evidence from readers, friends and relatives that more-expensive real estate is a tougher sell in other parts of the country, too, particularly in more-rural communities. Maybe not somewhere like the heart of Silicon Valley or in Denver, but in some places, even in cities with red-hot Zip codes, the real estate markets are clearly slowing. Port Washington, N.Y., which is about 40 minutes from New York by car, is considered a cooler market, as is Stamford, Conn.

Why (and how quickly) real estate markets turn from hot to cold (and back again) is a bit of a mystery. Homes in your neighborhood might be selling briskly one week, and then suddenly you notice that the number of “for sale” signs is multiplying.

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Sometimes the real estate market fluctuates from block to block, neighborhood to neighborhood and suburb to suburb. Sometimes the cause is a local school closing or another one winning an award. Or you may have a local business that expands or contracts. If a city is doing well financially, with a heterogeneous workforce, home prices should rise.

But when local home prices are out of sync with what residents earn, that’s a red flag. Fifteen years ago, Ilyce was touring different cities and noticed that home prices in neighborhoods filled with people who had public-service jobs were out of step with earnings. How had someone who earned $50,000 or $100,000 per year paid for a house worth $500,000?

The answer, as we later learned, was a surge in subprime mortgages, particularly those known as option adjustable-rate mortgages.

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Homeowners could pick whatever interest rate or amount they wanted to pay each month. And whatever they didn’t pay (but was owed based on the “real interest rate” applied to the loan balance) was added back into the home, a form of negative amortization, which meant that instead of the mortgage balance being paid down each month, it was growing. This was fine as long as the housing market was shooting up in value. But when the real estate ride stopped, these homeowners found that they owed a lot more than their homes were worth and that it was ultimately cheaper to walk away. Which they did by the millions.

When real estate markets start to turn, residents might simply wonder why it is taking so long to sell their homes. If they need to leave, or if they believe prices will be lower in six months, they drop their list price dramatically. No one wants to be the canary in the coal mine. The mentality shifts quickly from “I’ll get what I want if I wait long enough” to “Get out fast today with whatever we can get.”

A few weeks ago, Ilyce answered a question in her weekly newsletter about whether home prices were going to decline. Currently, throughout most of the country, there are too few homes for the number of buyers who are actively looking. So housing prices have been rising, dramatically in some cases. Extremely low mortgage rates are helping prop up the market, but there is simply not enough housing that has been built in the past 10 years to keep up with demand.

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But you get to a point where even a 30-year loan at 3 percent can’t tempt you to buy a house that’s overpriced for what it is, or you can’t afford it because of the taxes, maintenance and upkeep costs, commuting expenses, or the cost of child care. Most households already have two incomes supporting expenses. Nearly 50 percent of Americans have a “side hustle” on top of their full-time jobs. Even so, many millennials are finding today’s housing markets too expensive and are opting out. The number of millennials who own homes today is far less than the number of Gen X or baby boomers who owned at the same age.

There’s a widespread belief that the U.S. economy is strong, even though other countries are tottering on the edge of a recession and interest rates around the world are negative. Tariffs and the trade war are spooking business owners from Wall Street to farmers in Iowa and California, the gas and oil industry in Texas, and ranchers out West. The bond market now has 10-year interest rates that are lower than the short-term rates, which is known as an inverted yield curve. The last time we saw an inverted yield curve was before the Great Recession. And inverted yield curves have predicted every recession since the 1950s.

We don’t have a crystal ball — we wish we did — so we can’t tell you when the recession will come. But remember this: When wages and home prices get too far out of sync, something will change in the real estate market. Call it “the physics of real estate.”

Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the chief executive of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate lawyer. Contact them through her website, ThinkGlink.com.

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