Each year, Inman News reports on what the major trade group economists are forecasting for real estate the coming year. Now, we look back at what they told us last year to see how their original predictions played out.

Here’s a look at what the trade groups thought was in store for 2006, and what each group now projects as the actual results for the year. We also include the experts’ forecasts for 2007.

National Association of Realtors

Last year at this time, NAR chief economist David Lereah was predicting a “modest cooling” in the real estate market in 2006. Like most experts, NAR’s top economist didn’t anticipate that sales of new and existing homes would decline so steeply in 2006, or that housing starts would be off so dramatically.

When all the numbers are in, sales of existing homes are projected to be off 8.6 percent this year, to 6.47 million (which, as NAR is quick to point out, is still the third-best year on record). Looking forward to 2007, Lereah expects existing-home sales to “coast” at just over 6.4 million next year, although he anticipates sales of new homes will dip below 1 million.

New-home sales, which according to projections are expected to plummet 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.

The median existing-home price — which exceeded NAR’s expectations by rising 1.9 percent to $223,700 in 2006 — is expected to see another 1.7 percent increase in 2007, to $227,500. The median new-home price is also expected to trend upwards by 1.3 percent, to $241,400, after dropping 1.1 percent to $238,400 in 2006.

“Overall home-price gains will be modest” in 2007, Lereah said. 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.”

With sellers more flexible about price, and mortgage interest rates projected to stay near historic lows, “The market promises to be more balanced between buyers and sellers by early spring, supporting future price growth,” Lereah said.

Construction of new homes is also being scaled back significantly, which should help keep inventories manageable. NAR predicts total housing starts in 2006 will be off 10.6 percent to 1.85 million units, and anticipates another 11.8 percent decline to 1.63 million in 2007.

Mortgage Bankers Association

Doug Duncan, chief economist for the Mortgage Bankers Association, anticipates interest rates on 30-year fixed mortgages will stay in the neighborhood of 6.5 percent in 2006, but that mortgage originations will fall 14 percent to $2.1 trillion. Like Lereah, Duncan is predicting modest gains in the median price of new and existing homes next year.

“Despite sluggish growth, largely due to declining residential investment and auto production in the second half of this year, we are optimistic about a rebound in 2007,” Duncan said in presenting his 2007 forecast at MBA’s 93rd Annual Convention & Expo in Chicago. “Long-term interest rates have remained low in the face of rising short-term rates, equity prices have risen nearly 20 percent, capital expenditures remain strong, the trade sector has turned from a big drag on growth to a modest stimulus, and energy prices have dropped sharply.”

But Duncan sees the unemployment rate increasing to 4.9 percent by the end of 2006 and to 5.2 percent by mid-2007, where he thinks it will remain through 2008. Fixed-rate mortgages will also be more expensive in the long term, rising to about 6.8 percent by the end of 2008, Duncan said.

National Association of Home Builders

At 1.62 million, The National Association of Home Builders’ projection for housing starts in 2007 is right in line with the numbers put forward by NAR and the Mortgage Bankers Association.

“We are in the midst of an inevitable adjustment following the housing boom of 2004-2005 when housing market activity soared to unsustainable levels,” NAHB Chief Economist David Seiders said in November, when the association released the results of a poll in which 81 percent of homeowners said they believe their homes will rise in value over the next five years. “Housing demand should stabilize in short order, and the downward adjustment to housing production should run its course by mid-2007. The market that emerges from this correction will display good balance between supply and demand, and move to a healthy and sustainable trend based on solid underlying fundamentals.”

California Association of Realtors

California’s closely watched housing market will see a decline in median home price and existing-home sales in 2006 and 2007, the California Association of Realtors projects.

At this time last year, CAR chief economist Leslie Appleton-Young was dismissive of a “bubble” scenario, saying the state’s economy would continue to grow and mortgage rates would remain at all time lows. Although Appleton-Young predicted inventories would rise as sellers attempted to time the market peak and investors left the market, she said significant housing-price declines are usually spurred by economic downturns, including job losses or high mortgage rates.

Existing-home sales for 2006 are now projected at 481,200, significantly less than the 630,610 predicted by CAR at the end of 2005. The median home price of $560,700 is also about $14,000 lower than anticipated.

“While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected,” Appleton-Young said Oct. 18. in releasing her 2007 Real Estate Market Forecast.

Appleton-Young said she is confident that unemployment in the state will remain low at 5.1 percent, although the CAR economist expects the rate on a 30-year fixed mortgage to rise to 6.7 percent.

Fixed-rate mortgages “hit and passed the psychological threshold of 6 percent” in 2006, and adjustable-rate mortgages passed 5 percent, “ultimately causing a decline in affordability,” Appleton-Young said. Affordability concerns also will continue to constrain sales for many households in California throughout 2007, especially for first-time home buyers, she predicted.

Minorities will continue to play a big role in California’s housing market, Appleton-Young said. Latinos, Asians, African Americans and other minorities represent about 42 percent of all buyers and nearly 58 percent of first-time home buyers.

CAR projects the median home price in California will decline 2 percent to $550,000 in 2007, while sales of existing homes are projected to decrease 7 percent to 447,500 units.

Appleton-Young said that some regions in the state, such as the Central Valley, San Diego and Riverside/San Bernardino regions, will likely experience sales declines greater than the state as a whole in 2007. “That also holds true for several second-home markets, including the desert areas of Southern California and the Wine Country,” she said.


Send tips or a Letter to the Editor to matt@inman.com or call (510) 658-9252, ext. 150.

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