Home values rose a little in 2006.

But take a good deep breath.

They're falling a little this year.

The National Association of Realtors says the median selling price for all types of single-family homes reached a record $221,900 in 2006, up from $219,000 in 2005 and $195,200 in 2004.

That 1.4% increase was the smallest since the Realtors began tracking prices in 1968 and far short of the average annual appreciation of 6.5%.

When the year began the association projected prices would rise a paltry 1.0%.

Then a spate of defaults over the winter -- primarily among borrowers with below-average credit -- resulted in a growing number of foreclosures. That has hurt home values in neighborhoods across the country because banks often sell repossessed homes at a discount just to be rid of them.

Now the Realtors expect prices to decline 1.7% to $218,200, and data from the first three months of the year shows the median sales price for existing single-family homes was 1.8% lower than in early 2006.

Home values fell in nearly half the nation's metro housing markets -- 157 of 317-- according to a study by Global Insight and National City Corp.

There's no consensus on when prices will recover. While the Realtors say homes will recapture this year's loss with a 1.8% gain next year, Bank of America economists say home values will decline another 2.5% in 2008, followed by two years of flat prices.

That will undoubtedly disappoint homeowners who benefited from the double-digit appreciation of the early 2000s.

But prices certainly aren't collapsing. The report shows that most homes are retaining most if not all of the extraordinary value they've gained over the past decade.

Prices increased in 130 cities last year, were unchanged in one and down in only 30. Nearly half of the cities where prices fell were in three Midwestern states that have been particularly hard hit by factory closings and layoffs -- Ohio, Michigan and Indiana.

Click here to check how the median sales price in your town has changed over the past year.

That should be reassuring.

Moody's Economy.com Inc., a research firm in West Chester, Pa., says median prices will decline in more than 100 cities over the next several years, with 20 metro areas experiencing a decline of 10% or more.

But that's one of the direst predictions we've seen and even it expects home prices to give up only a few percentage points of their substantial appreciation.

Nor is a slight decline a bad thing because housing costs have been growing much more quickly than the incomes of potential buyers in some cities, particularly along the east and west coasts.

That priced many buyers out of the market, particularly younger, first-time buyers. Allowing incomes to catch up with home prices will bring those buyers back and set the stage for home values to return to more substantial growth in a few years.

What does all this mean if you're selling a home?

The market is tilting a little towards the buyer. There are still too many unsold homes on the market -- about a third more than this time last winter -- and the typical home is taking longer to sell.

The days of putting your home on the market Saturday and having three or four competing bids by Sunday night are over in most cities.

The key is to know exactly what comparable homes in your neighborhood have been selling for and price accordingly.

In most cases you can expect to get about what the family next door sold a comparable home for last fall.

If you must move right away, you'll probably have to take a little less. And no matter how determined and patient you are, you'll have a hard time finding anyone willing to pay 5% or 10% more.

By Mike Sante

Interest.com Managing Editor

And Carolyn Siegel

Interest.com Associate Editor

Have a question about your finances? Ask us at editors@interest.com