The latest National Association of Realtors housing market forecast projects 6.42 million existing-home sales this year and 950,000 new-home sales, a dip compared to 6.48 million existing-home sales and 1.06 million new-home sales last year.
And despite problems in the subprime lending market and erratic weather patterns, the association expects a housing market recovery this year, according to the trade group’s forecast.
“Lending problems in our nation’s subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast. Even so, these problems are likely to be contained and not spill over into the prime mortgage market,” said David Lereah, NAR chief economist, in a statement.
“Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new-home market, which hopefully will start to rise later in the year.”
After a 1 percent gain in the median existing-home price and a 1.9 percent increase in the new-home median price last year, the national median existing-home price is projected to rise 1.2 percent this year to $224,500 this year and the median new-home price is expected to rise 1.7 percent to $249,600. “Stronger gains are probable in 2008, with existing-home prices rising 3.1 percent and new-home prices growing 3 percent,” according to the forecast report.
Existing-home sales are projected to rise to 6.66 million in 2008 and new-home sales are projected to rise to 981,000. Housing starts are expected to total 1.5 million this year and 1.56 million in 2008, compared with 1.8 million units in 2006.
“Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next. However, total sales this year will be fairly close to 2006 because last year started high and ended low,” Lereah stated.
The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate fell to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions — the unexpected dip we’re seeing now, and a rise in mortgage applications, are positive signs,” Lereah stated.
As for the weather, Lereah stated that the spell of unusually mild weather in December was followed by a sudden chill in January and major storms in February, and the housing market is likely to suffer the consequences “throughout this spring.”
“February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 — that should drag sales down in March,” Lereah said. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April,” he stated.
The association expects the unemployment rate to average 4.7 percent this year; it was 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent in 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is projected to drop to 2.5 percent this year compared with 3.3 percent in 2006. Inflation-adjusted disposable personal income is expected to rise 3.1 percent in 2007, up from 2.6 percent last year, according to the forecast report.