Realtors: Home prices to fall for the rest of the year and into 2007

WASHINGTON, D.C.
September 13, 2006 8:29am

Housing prices are expected to continue to have a limited fall throughout 2006, according to the National Association of Realtors. The sellers’ market of the past five years is transitioning to a buyers’ market, it says.

NAR forecasts a drop in home sales of around 8 percent in 2006, followed by another 2 percent decline in 2007. The numbers are based on the stabilizing of mortgage rates and modest expansion of the economy, it says.

Also predicted is that home price growth will be minimal — less than 3 percent in 2006 and 2007.

“For the past five years, the housing market has been a steadfast leader in the U.S. economy,” says Thomas Stevens, president of NAR, in testimony Wednesday before the U.S. Senate Subcommittee on Housing and Transportation and the Senate Subcommittee on Economic Policy. “After five years of outstanding growth, the housing market is undergoing a period of adjustment and becoming more and more of a balanced market between buyers and sellers.”

He says that with the falling demand and increased supply, home prices still realized slight appreciation although it was less than 1 percent, where over the past few years homes were appreciating at double-digit rates.

“While recent developments raise concern, it is important to remember that the housing market varies significantly across the country,” Mr. Stevens says. One-third of the country (by population) is still seeing rising home prices, including Alaska, New Mexico, Vermont and many states in the South, excluding Florida, he says.

But states like California that experienced the greatest increases in home prices in recent years are experiencing significantly lower sales, he says.

“Contrary to many reports, there is not a ‘national housing bubble,’” says Mr. Stevens. “We were seeing home prices and mortgage debt servicing cost-to-income ratios increase to unhealthy levels in some housing markets, which precipitate an adjustment.”

Also contributing to the cooling housing market is an increase in mortgage rates of nearly one point, speculative investors pulling back and first-time buyers being priced out of the market, the Realtors group says.

NAR warns that a significant shift in interest rates or a change in the economy would change this forecast. NAR notes that a soft landing is possible under the right circumstances and affordable mortgage financing is an important component in achieving this.