The National Association of Realtors has lowered expectations for 2007 home sales, according to the group’s latest forecast report.

Existing-home sales are expected to drop 8.6 percent this year compared to 2006, with new single-family home sales and housing starts falling 23.8 percent, the association announced today.

In its previous forecast, released last month, the trade group had predicted a 6.8 percent dip in existing-home sales and an 18.9 percent drop in new single-family home sales this year compared to last year. The existing-home sales forecast is down 7.8 percent and the new-home sales forecast is down 16.3 percent compared to the association’s annual forecast released in January.

“There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines,” said Lawrence Yun, NAR senior economist, in a statement.

Yun said that the jumbo loan market is “beginning to settle,” though, and “FHA-insured loans are helping to fill the subprime vacuum.”

Existing-home sales are projected to fall to 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales are expected to fall to 801,000 in 2007 and drop again to 741,000 in 2008, compared with 1.05 million in 2006, the association reported.

“A sharp production pullback by home builders deep into 2008 is a healthy trend that will help trim down housing inventory,” Yun stated.

Housing starts, including multifamily units, are expected to drop to 1.37 million this year and reach down to 1.26 million in 2008.

The association expects existing-home prices to drop 1.7 percent this year to a median price of $218,200, and then to rise 2.2 percent in 2008. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.

The association’s previous forecast for the year, released last month, predicted a median existing-home-price decline of 1.2 percent this year and a new-home-price decline of 2.3 percent. And back in January, the association had forecast a 1.5 percent rise in the national median existing-home price and a 3 percent gain in the new-home price in 2007.

The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then hover in the 6.5 percent range in 2008, the association reported.

“We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans,” Yun stated. “FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future.”

Growth in the U.S. gross domestic product is forecast at 2 percent in 2007, compared with 2.9 percent growth rate last year. And the association expects GDP to grow 2.7 percent in 2008.

The unemployment rate is expected to average 4.6 percent for 2007, level with 2006, according to the report. Inflation, as measured by the Consumer Price Index, is expected to be 2.8 percent in 2007, compared with 3.2 percent in 2006. And the association expects inflation-adjusted disposable personal income to increase 3.6 percent this year, up from 3.1 percent in 2006.

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