The market for homes in the Lehigh Valley is expected to remain healthy as the area continues to create jobs, and more affluent people move here.

Economists and real estate agents expect home prices to rise this year, although it's unclear if appreciation will stay at the same robust double-digit rates as the past four years. The peak selling season -- the warmer months of the year -- is still ahead.

There are signs that the pace of sales and the increase in prices will be more modest. The primary indication is that as more homes have sat on the market, buyers have regained the freedom to negotiate prices, and ask for concessions.

Experts say the Valley is still desirable because home prices are still much lower than in New Jersey and Philadelphia. Plus, mortgage rates rose slightly in 2006 but still remain low.

Home prices have not stopped rising in the Valley even as the number of houses that are sold has declined. Home sales fell 3.5 percent in 2006, according to the Lehigh Valley Association of Realtors. But the year ended with prices for existing homes rising 10 percent on average to $228,000.

A large supply of homes on the market helped slow the pace of sales last year, and there are still plenty of homes for sale now. New listings outpaced home sales by nearly two-to-one last year, according to the Realtors association. That's partly because the local housing stock has swelled, with the construction of dozens of new subdivisions in the last 10 years, according to U.S. Census data.

In January, home sales fell for the eighth month in a row, but homes prices continued to rise, albeit by a modest 1 percent.

"There is still strength, still demand for houses but people are being more selective," said Stephen Thode, director of the Goodman Center for Real Estate Studies at Lehigh University.

The Realtors association does not release forecasts. Loren Keim , owner of Allentown firm Century 21 Keim Realty, develops proprietary data about the local housing market. He predicts sales will remain flat or fall slightly this year. He also predicts a modest increase in prices this year.

In December, new listings rose 34 percent, and there were 37 percent more homes on the market than in the same period in 2005. Inventory continued to be heavy in January. Both factors will affect how quickly homes sell in the first part of the year, and in part, how much they sell for.

The number of homes sold fell for the eighth month in a row in January. Last year was the first year that sales dropped since at least 1996, when Lehigh and Northampton counties combined their real estate associations to form the one group. The number of pending sales contracts, a measure of future home sales, fell to the lowest level in four years in December.

But even if home sales fall again, prices are likely to climb.

Since 2000, average prices have soared 80 percent. Typically, homes in the Lehigh Valley appreciate about 5 percent a year, so homes are appreciating at twice the normal rate. Anyone who bought a home in Lehigh and Northampton counties in 2000 for $150,000 now has a property worth $270,000, assuming it appreciated at the average rate.

Low interest rates and an influx of people from more expensive areas have fueled much of the growth.

People moving from New Jersey still see the Valley as a bargain where they can buy more home for significantly less money. For example, the average price of an existing home in New Jersey was $400,600 through the third quarter of last year.

New homes have been a big draw for people moving here from New York and New Jersey. The average cost of newly constructed, four-bedroom homes rose 6 percent in December to $416,000, compared to the year before.

For people who own a home, news about climbing values is welcome. What's probably their largest asset went up considerably in value.

But people buying their first home or trading up to a bigger house are finding their dollars won't go as far.

Nationally, the rate of appreciation slowed considerably and, in some areas of the country, home prices fell. The average price of an existing house in the United States rose less than 1 percent to $268,300 last year. The number of homes sold nationally fell 8.4 percent, the biggest drop since 1989.

Homes priced below $200,000 continue to sell briskly in the Valley. For properties such as row houses and twins in the area's three cities, it's as though the hot market of 2005 never ended, according to agents. Keim said he listed a property this year that faces onto an alley, and immediately received two offers.

"It's an alley property, for Pete's sake," Keim said.

Suburban homes priced above $300,000 are not selling as quickly, in part because a large number of them remain on the market. Real estate agents say many sellers have been slow to catch on to the shift in the market that's favoring buyers. As a result, some push for prices that are higher than the market will bear, and often those homes sit unsold for months.

"It's hard to [convince] a seller when the neighbor's house sold in late 2005 for one price and they have a similar house, and we are advising them to go with the same number or less, rather than 10 percent more," said Jack Gross, owner of Cassidon Realty Corp. in Bethlehem.

Thode said residential areas that are growing and have good access to highways and other amenities will continue to see rising prices. But unlike in 2005, when homes of varying conditions and locations sold quickly, "It won't be across the board."

Northampton County will probably fare better than Lehigh County this year, Thode said, because a slots parlor will be built in Bethlehem, plans are under way for developments along Route 33 and the region is closer to New Jersey, where many newcomers commute to work.

jeanne.bonner@mcall.com

610-820-6539

VALLEY HOUSING PRICES

Average price, 2005: $207,000

Average price, 2006: $228,000

Change: 10.1%

Source: Lehigh Valley Association of Realtors