The median home price in California is expected to drop 2 percent in 2007 compared to 2006, according to a forecast released this week by the California Association of Realtors trade group.

The median price of a home in the state is forecast at $561,000 this year and $550,000 in 2007. That compares to an expected 7 percent increase this year compared to 2005, a 16.2 percent gain in 2005, and a 20.9 percent rise in 2004.

Meanwhile, single-family existing-home sales are expected to drop 23 percent this year compared to 2005 and fall another 7 percent in 2007 compared to this year, according to the 2007 California Housing Market Forecast. Sales were up .04 percent in 2005 compared to 2004, up 3.8 percent in 2004, up 5.1 percent in 2003, and up 13.6 percent in 2002.

The rate for a 30-year fixed-rate mortgage in the state is expected to be 6.5 percent this year and to rise to 6.7 percent next year, while the rate for a one-year adjustable-rate mortgage is expected to be 5.6 percent this year and remain flat in 2007, the association reported.

“The housing market clearly downshifted in 2006 from the record-setting sales and robust price gains of the last few years,” said Vince Malta, association president, in a statement. “The residential real estate market in 2006 was characterized by a gap between buyer and seller expectations. Sellers sensed that the peak of the market was approaching, yet still hoped to obtain the highest possible prices. Buyers’ sense of urgency waned as the number of homes on the market grew and they took longer to identify and subsequently purchase a home.

“Although the 2007 sales decline is not expected to be as steep as what we experienced this year, the psychology of the market — matching the differing expectations of sellers and buyers — will continue to be a factor as Realtors help consumers navigate their way through a changing market.”

Malta said that since 1968, the long-term average price appreciation is 9.1 percent in the state.

And Leslie Appleton-Young, association vice president and chief economist, said in a statement, “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. The anticipated slowdown that began in October 2005 was heightened by dual natural disasters in the Gulf Coast, a significant drop in consumer confidence, rising energy and raw materials costs, and a series of Federal Reserve interest-rate hikes that began in June 2004.

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

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 stated.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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