2007 Housing Market Predictions

New home sales will continue to fall in the first three months of 2007 while existing home sales are expected to recover, says the National Association of Realtors (NAR).

The NAR’s latest forecast says new home sales will fall 17.7 percent to 1.06 million in 2006. That’s the fourth highest total on record, according to the NAR. And sales will fall an additional 9.4 percent in 2007 to 957,000.

According to the NAR, lack of supply will be the main factor behind lower new home sales. Builders cut back on building new homes in order to maintain higher prices. Plus, high construction costs have been eating into builder’s bottom lines, forcing them to reign in building efforts.

Housing starts, which are the number of homes builders break ground on, are expected to drop 12.3 percent to 1.82 million units in 2006. Starts will then fall another 15.1 percent to 1.54 million units in 2007, says the NAR.

Existing home sales are forecast to drop by 8.6 percent to 6.47 million in 2006. That’s the third best year on record, according to the NAR. However, existing home sales are expected to recover in 2007 from the current cyclical low to sales of 6.40 million or 1 percent lower than this year’s total sales.

"By the fourth quarter of 2007, existing home sales will be 4.6 percent higher than the current quarter," says NAR chief economist David Lereah.

Though home prices have shown signs of weakness lately, the NAR says prices of existing homes will rise 1.4 percent to $222,600 in 2006 and they’ll gain another 1 percent in 2007, rising to $224,700.

New home prices, on the other hand, will be mixed. The NAR is predicting prices will ease by 0.5 percent to $239,700 in 2006, but will edge up 0.8 percent in 2007 to $241,700.

"Keep in mind that overall home prices were still appreciating at double digit rates in the first quarter of this year — prices in this buyer’s market are temporarily a little below a year ago when we were in a strong seller’s market," Lereah said. "This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains," notes Lereah.

Overall, the NAR is not expecting a repeat performance of the past three or so years.

"Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year," he said. "Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards."

The housing market certainly has reached a plateau this year, and time will tell if the NAR’s predictions come true. The wild card will be interest rates and the economy. If the economy were to, for example, slip into recession, all bets are off as to how far the housing market could fall.

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