According to a recent study by Harvard University's Joint Center for Housing Studies titled "State of the Nation's Housing," it appears that although the prices of homes won't increase at the giddy levels of the past few years, they shouldn't experience sharp declines. The main reason for that, according to the study, is that most cities have curbed excessive building and haven't seen severe job losses.

Interest Rates

Approximately a million people bought homes last year, using a combination of low down payment loans and flexible financing options, in spite of higher home prices and rising interest rates. The majority of those buyers will have a fixed rate on their loans, even if they're adjustable loans, for the first three to five years. If their loans were interest-only, the principle will begin becoming due after a similar amount of time.

The good news for homeowners is that even though rates are going up, the study found that only 10 percent of homeowners with adjustable mortgages will be looking at higher house payments in 2006. The not-so-good news, especially if you happen to be someone who was counting on a continuation of the runaway housing trend, is that home prices will be slowing.

Wages and Housing Prices

Part of the reason for the slow-down is that wages aren't keeping pace with housing prices. The study found that from 2001-2004, the number of American households that spent more than half their income on housing rose to 15.8 million, which represented a 14 percent increase.

The Harvard study suggests that if state and local governments don't find ways to encourage more affordable housing, U.S. homebuyers may be in for a difficult time in the future. With so much of a middle-income family's income being spent on housing, important things as IRAs and savings will begin to fall by the wayside just to keep a roof over their heads, which will put even more strain on the government as people seek financial help.

Interestingly, the study also found that each succeeding American generation has achieved a higher percentage of home ownership, in spite of price increases that haven't been paralleled by increased wages and the fact that each generation has a higher number foreign-born and minority heads of household with a lower average income than their native-born white counterparts. In that light, the study suggests a need for more low and moderate priced housing.

Perhaps most telling, the study showed that 20 percent of all mortgages in 2005 were interest-only for at least part of the term, another indication of how out-of-sync prices have become compared to incomes. In fact, the study compared the 149 largest cities in America and discovered that the number of cities where the median home price was at least four times the median income nearly quadrupled from 2001-2005 (from 13 to 49).

All in all, the Harvard study would seem to suggest that although the U.S. housing market may be slowing down, there doesn't appear to be a real estate crash on the horizon.

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