Home Prices Expected to Rise, Sales to Drop Slightly in 2007

The number of homes sold will decline less sharply this year than last year, while price appreciation will gain steam. The median sales price for existing homes is predicted to reach $225,300 nationally.
By: Campion Walsh: The Wall Street Journal Online
U.S. home sales will decline less sharply this year than they did last year, while home-price appreciation is expected to gain steam, the National Association of Realtors said.

In its latest forecast, the NAR said sales of existing homes are likely to decline about 1.2% this year to 6.42 million, following a sharp drop last year, while sales of new homes are seen falling about 9.7% to 957,000.

Because the market is starting this year at a relatively low point, even a gradual recovery of sales during the year would mean that annual totals for 2007 are likely to show no substantial improvement, according to NAR Chief Economist David Lereah.

"The good news is that the steady improvement in sales will support price appreciation moving forward," Mr. Lereah says.

The Realtors' group, which is running a $40 million ad campaign designed to encourage consumers to contact their local realtors, expects moderate price increases this year. The group forecasts the median sales price for existing homes to grow 1.5% nationally to $225,300, following last year's estimated 1.1% rise. The national median price for new homes will increase 3% this year to $248,900, according to the NAR, after estimated growth of 0.3% last year.

As builders rein in new projects to support prices, housing starts are expected to drop 16.6% this year to 1.51 million, their lowest level in a decade, the NAR said.

Mortgage Bankers Association chief economist Doug Duncan expects home prices to rise 1% to 2% annually for the next couple of years. But some markets could see price declines of 10% to 20% this year, he says, a shift from the last four to five years, when there were "almost no markets where prices were declining."

Home sales will decline 7% to 8% this year, with most of the decline in the first half, adds Mr. Duncan, who expects the market to bottom out in mid- to late 2007.

Meanwhile, the volume of mortgage applications filed with major U.S. banks rose 16.6% on a seasonally adjusted basis last week, compared with the week before, the MBA reported yesterday.

The number of applications - for both purchases and refinancings - increased 12%, compared with the same period a year earlier. Application volumes, on a seasonally adjusted basis, fell about 14% just before the holidays.

Applications for loans to buy homes stood at the highest level in nearly a year, according to the MBA. Applications to refinance rose about 28% from a year ago.

The average rate for a 30-year fixed-rate loan fell to 6.13% from 6.22% the previous week, which was the highest rate seen in eight weeks. The average rate for a 15-year fixed-rate mortgage dropped to 5.85% from 5.93% the previous week. The rate for a one-year adjustable-rate mortgage, or ARM, averaged 5.79%, down from 5.84% the previous week, the MBA's data showed.