National Association of Realtors: Home Sales to Flatten in 2007

As the year comes to a close, numerous agencies will share their view on next year’s housing market. We shared that of Freddie Mac with readers earlier today.

Now, the National Association of Realtors has released its forecast.

Following a correction in home sales and prices in 2006, existing-home sales are expected to “coast” at roughly the same level next year, although there will be some additional decline in the new-home market, the report says.

“Overall home price gains will be modest,” said David Lereah, NAR’s chief economist. “Home sellers are becoming realistic about current market conditions and are now offering more competitive pricing, in addition to some incentives or concessions - especially to help first-time buyers,” he said.

“We now have the most favorable market for home buyers in several years, and most sellers - who’ve been in their home for a normal period of home ownership - are still seeing very healthy returns on their investment.

Conditions for buyers have improved because sellers are flexible now and mortgage interest rates are near historic lows. The market promises to be more balanced between buyers and sellers by early spring, supporting future price growth,” Lereah said.

Existing-home sales, expected to fall 8.6 percent to 6.47 million this year - the third-best performance on record - are projected to be essentially even in 2007 with a 0.6 percent decline to 6.43 million.

New-home sales, likely to drop 16.8 percent to 1.07 million in 2006, are forecast to fall another 8.7 percent next year to 975,000, largely due to a significant reduction in construction by builders.

Total housing starts this year will probably fall 10.6 percent to 1.85 million units, and then decline another 11.8 percent to 1.63 million in 2007.

“Given the huge gains in home values during the housing boom, and this year’s rise in housing inventory, overall price gains this year and next will be modest,” Lereah said.

Even with temporary declines in some months, the national median existing-home price should increase 1.9 percent for all of 2006 to $223,700, then another 1.7 percent next year to $227,500. The median new-home price is expected to drop 1.1 percent to $238,400 this year before rising 1.3 percent in 2007 to $241,400.

The 30-year fixed-rate mortgage is projected to average 6.4 percent in the fourth quarter and then rise to 6.6 percent by next spring.