Forecast: Slower-than-expected home sales in '06

National median existing-home price projected to rise 2.8%
Inman News
The National Association of Realtors trade group has lowered its expectations for annual home sales in 2006.

Existing-home sales are forecast to fall 7.6 percent this year to 6.54 million, while new-home sales are forecast to drop 16.1 percent to 1.08 million compared to the previous year.

In the group's previous annual forecast, released Aug. 8, existing-home sales were expected to fall 6.5 percent this year while new-home sales were projected to fall 12.8 percent.

If the latest forecast rings true, it would be the third-highest existing-home sales record on total and the fourth-highest total for new-home sales.

Housing starts are projected to decline 9.6 percent to 1.87 million in 2006, compared to the August projection of a 9.1 percent decline.

The market is experiencing "an inventory and price imbalance," the Realtor group reported.

David Lereah, NAR's chief economist, said in a statement, "A year ago we had record home sales and tight supply with buyers bidding over the asking price. This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a buildup in housing inventory."

He added, "Home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms. "Over time, home prices rise at the rate of inflation plus 1 to 2 percentage points -- buyers in most of the country who plan to stay in their home for a normal period of home ownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned."

The national median existing-home price for all housing types is expected to grow 2.8 percent this year to $225,900, with the median new-home price rising 0.2 percent to $241,400. "New-home appreciation is dampened by builders offering incentives to reduce inventory," according to the forecast announcement.

Thomas M. Stevens, NAR president, said in a statement that higher interest rates slowed home sales during the first half of the year. "The slowdown occurred mostly in higher-cost markets, while other areas continued to expand," Stevens said. "The shift we've seen lately results from psychological factors with buyers on the sidelines trying to time the market. Both buyers and sellers need to understand what's going on within their local market areas."

The 30-year fixed-rate mortgage is expected to rise to 6.7 percent in the fourth quarter, according to the forecast.

The unemployment rate is expected to average 4.8 percent for 2006, while annual inflation, as measured by the Consumer Price Index, is forecast at 3.5 percent. Growth in the U.S. gross domestic product is expected to be 3.4 percent this year. Inflation-adjusted disposable personal income is projected to grow 3.5 percent in 2006.