Housing Market Expected to 'Coast' into 2007 with Modest Price Gains

Following a correction in home sales and prices in 2006, existing-home sales are expected to "coast" at roughly the same level next year, although there will be some additional decline in the new-home market, according to a forecast released Saturday at the National Association of Realtors(R) Conference & Expo in New Orleans.

Overall home price gains will be modest, said David Lereah, NAR's chief economist, and sellers are adjusting to the market transition. "Home sellers are becoming realistic about current market conditions and are now offering more competitive pricing, in addition to some incentives or concessions -- especially to help first-time buyers," he said.

"Given the huge gains in home values during the housing boom, and this year's rise in housing inventory, overall price gains this year and next will be modest," Lereah said. Even with temporary declines in some months, the national median existing- home price should increase 1.9 percent for all of 2006 to $223,700, then another 1.7 percent next year to $227,500. The median new-home price is expected to drop 1.1 percent to $238,400 this year before rising 1.3 percent in 2007 to $241,400.

The unemployment rate for 2006 is likely to average 4.6 percent, edging-up to 4.7 percent next year. Inflation, as measured by the Consumer Price Index, is forecast at 3.4 percent this year and 2.3 percent in 2007, while growth in the U.S. gross domestic product is expected to be 3.3 percent in 2006 and 2.7 percent next year. Inflation-adjusted disposable personal income should grow 3.3 percent this year and 3.5 percent in 2007.