Prices are going to level off.

We’re heading into a correction.

I’m going to wait to buy until home prices have gone down.

Realtors hear these and similar comments from prospective homebuyers every day.

Not surprising, really. They look around and see we’re no longer in that blazing-hot-everything-sells-in-a-week-with-multiple-offers mode we’d all gotten used to.

As of the first part of this week, Livermore had 177 homes of all types offered for sale through the Multiple Listing Service, about twice as many as in February, March, April and May.

But inventory is up, not just because we’re out of the hot selling season.

In November 2017 there were 31 homes on the MLS – that’s an increase of about 550 percent year-to-year!

There are a number of very good reasons for this:

• Builders are finally completing housing that was planned at the end of the recession.

• More Baby Boomers are retiring and moving to other areas.

• Rising prices have pushed some prospective buyers out of the Livermore market. Many of those folks are moving even further east, where developers are building like crazy.

• Some buyers are “waiting.” When buyers wait, houses sit on the market longer and remain part of the available inventory. (Homes are still not sitting for long, though. Instead of 9-14 days, we’re up to an average of 36 days on market before a home goes into contract. The National Association of Realtors figures anything under 180 days is still a sellers’ market.)

“As the number of homes for sale increases and home value appreciation slows, we expect the market to meaningfully swing in favor of buyers within the next two to three years,” according to Zillow Chief Economist Dr. Svenja Gudell.

And this brings us back to why some buyers are hesitating to jump into the housing market, and whether that’s a smart strategy.

“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young.

“Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting homebuying decisions.”

Appleton-Young predicts this uncertainty will create a mismatch between pricing expectations of buyers and sellers, which will limit price growth in the coming year.

Her forecast: Home prices will rise about 3 percent statewide in 2019, dropping to a 2 percent increase in 2020.

For comparison, Livermore home prices have increased an average of more than 12 percent per year since 2012.

Some buyers, though, believe home prices will drop substantially in the coming years.

Most economists disagree.

But economists aren’t always right. Many – including Appleton-Young – underestimated the housing downturn of 2006-2009.

What is fairly certain, though, is that interest rates will climb. The robust economy means the Federal Reserve will raise interest rates in December – and probably at least a couple of times in 2019.

What does that mean for prospective homebuyers?

Let’s take the situation of Alex and Madison. They have money in the bank from savings, gifts from their parents and a 401k they can borrow against.

They can afford a payment of about $3,650 a month for a new home, plus taxes and interest – a little less if they have to pay HOA fees.

A typical 30-year fixed-rate mortgage with a 20 percent downpayment currently has an interest rate of 4.99 percent.

That means they can afford to purchase a home priced at about $850,000, which could get them into a nicely remodeled medium-size older home or a brand new townhouse in Livermore.

Their monthly mortgage payments would be $3,646.

Of course, if interest rates rise to 5.25 percent in December, as expected, they would have to alter their plans.

Assuming they cannot afford to put more money down on a new home, they would have to limit their purchase price to $825,000, giving them a monthly payment of $3,645.

If interest rates go up to 5.5 percent, they could only afford to spend about $800,000 on a house, with a monthly payment of $3,634.

That means if interest rates climb a mere .5 percent, the price of the homes they are looking at now would have to drop $50,000, or 6.25 percent, in order for them to maintain their same monthly payments.

Meanwhile, they are continuing to pay rent instead of investing in their future.

“Is it realistic for prices in the $850,000 range to decrease $50,000?” asks Maureen Torretto, senior loan consultant at Loan Depot. “If rates don’t go too high it might be good to wait, but if rates do rise to 5.5 percent, even if prices fall that much they are only saving $12 per month. Is it worth the risk of waiting?”

Even the most bearish economists don’t expect home prices to decline more than 6-7 percent in the coming year, with perhaps a very slight drop in 2020 before things level off.

For one thing, that surge in homebuilding is beginning to cool. A tight employment market as well as tariffs on imported lumber has made it more difficult and expensive for builders to obtain the labor and materials they need to construct homes.

“That's especially true in hot urban markets, where land is expensive and zoning can be restrictive,” according to the National Association of Home Builders.

Low supply usually leads to unmet demand, which drives up prices.

So most economists expect Bay Area home prices to increase 3-5 percent in 2019.

Economist Aaron Terrazas of Zillow predicts those selling their homes will still have the edge in most markets for the near future.

“Although these trends are starting to lose their edge, it is far too soon to call it a buyer’s market.”

Cher Wollard is a Realtor with Berkshire Hathaway HomeServices Drysdale Properties, Livermore.