Lower Home Prices Entice Potential Buyers

"Given a positive economic backdrop and job creation, we expect sales activity to pick up early next year," says David Lereah, NAR's chief economist.
REALTOR® Magazine Online
Lower home prices are turning potential buyers into active lookers, and sellers are showing more willingness to negotiate, the NATIONAL ASSOCIATION OF REALTORS® reports. The trend is expected to inject life into slowing markets.

“Given a positive economic backdrop of lower interest rates and job creation, we expect sales activity to pick up early next year,” says David Lereah, NAR’s chief economist.

Existing-home sales are forecast to be fairly stable in the fourth quarter and sales for all of 2006 are expected to drop 8.9 percent to 6.45 million — the third strongest year after consecutive records in 2004 and 2005. New-home sales are expected to fall 17.3 percent this year to 1.06 million, the fourth highest year on record. Housing starts should be down 10.9 percent to 1.84 million in 2006.

2006 Prices to Increase Slightly

With a recent correction in the market, the national median existing-home price is likely to rise 1.6 percent to $223,000 for all of 2006; it’s anticipated prices will remain slightly below year-ago levels before gaining positive traction in the first quarter of 2007. The median new-home price is projected to decline 0.2 percent to $240,500 — largely the result of builder price cuts to move unsold inventory.

This presents a unique opportunity for buyers. “The supply of homes on the market is the highest we’ve seen in over 13 years, and mortgage interest rates are experiencing an unexpected decline,” says NAR President Thomas M. Stevens from Vienna, Va. “The 30-year fixed rate is hovering around 6.3 percent, and sellers in most of the country are now showing a willingness to negotiate.”

He says that the changing market makes it increasingly important for parties on both sides of the real estate transaction process to have professional representation.

Interest Rates to Rise Next Year

The 30-year fixed-rate mortgage will probably average 6.5 percent in the fourth quarter but will trend up modestly in 2007.

The unemployment rate should average 4.8 percent in the fourth quarter. Inflation, as measured by the Consumer Price Index, is expected to be 3.4 percent for all of 2006, while growth in the U.S. gross domestic product is forecast at 3.3 percent. Inflation-adjusted disposable personal income is likely to grow 3.4 percent for 2006.