The National Association of Realtors has lowered its expectations for the housing market — the group’s latest 2007 forecast anticipates a 17.8 percent drop in new-home sales, a 19 percent drop in housing starts and a 2.9 percent drop in existing-home sales compared to 2006.
“Housing activity this year will be somewhat lower than in earlier forecasts, with clearer analysis of the effects of stricter lending standards and a decline in subprime mortgage origination,” the association reported.
Also, the latest forecast calls for the median national existing-home price to fall about 1 percent and for the median new-home price to drop about 0.04 percent this year compared to last year.
In an earlier forecast in January, the association projected a 1.5 percent rise this year in the national median existing-home price and a 3 percent gain in the new-home price.
The association’s latest 2007 forecast projects 6.29 million existing-home sales this year compared with 6.48 million existing-home sales last year, and 864,000 new-home sales this year compared with 1.05 million last year.
The latest forecast for new-home sales in 2007 is about 9.7 percent below the association’s forecast in January, and the latest forecast for existing-home sales in 2007 is about 2 percent below the January forecast.
“If it weren’t for a favorable economic backdrop, housing would probably have a hard landing,” said Lawrence Yun, NAR senior economist, in a statement. “As it is, we see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later.”
Yun also stated that speculative behavior, which contributed to “abnormal price growth,” has left the market.
The national median existing-home price is forecast to fall to $219,800 this year after reaching $221,900 in 2006, and to rise 1.4 percent next year. The median new-home price is expected to drop slightly to $246,400 this year and rise 2.2 percent in 2008.
Existing-home sales are projected to reach 6.49 million in 2008, and new-home sales are projected to rise to 936,000 next year. Housing starts are expected to fall to 1.46 million this year and to rise to 1.52 million in 2008. The association’s latest projection for housing starts in 2007 is down about 3.3 percent compared to its January forecast.
The association expects the 30-year fixed-rate mortgage to rise to 6.5 percent by the fourth quarter. Last week, Freddie Mac reported the 30-year rate was 6.16 percent.
The unemployment rate is expected to average 4.6 percent this year, unchanged from 2006. Inflation, as measured by the Consumer Price Index, is estimated to decline to 2.5 percent in 2007, down from 3.2 percent last year, and growth in the U.S. gross domestic product is projected at 2.1 percent in 2007 — below the 3.3 percent growth last year. The association expects inflation-adjusted disposable personal income to rise 2.6 percent in 2007, the same as last year.