Realtors expect home prices to fall

WASHINGTON (MarketWatch) - U.S. home prices will probably fall temporarily as the housing market corrects, the National Association of Realtors said Thursday.

Prices should bounce higher in a few months, said David Lereah, chief economist for the real estate group "as the market works through a build in housing inventory."

Median existing-home sales prices should rise about 2.8% this year and 2.2% next year, the realtors said in their monthly economic outlook. Median new-home prices are expected to rise 0.2% in 2006 and 2.4% in 2007.

Existing-home prices have risen at an average of 9.6% annually in the past four years. New-home prices rose 13.3% in 2004 and 9% in 2005.

"This year sales are slowing, homes are plentiful and sellers are negotiating," Lereah said. "Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory."

Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but "people who purchased last year with the intent of flipping are likely to get burned," he said.
Consumer prices excluding shelter costs have risen 4.4% in the past year.

The group is forecasting existing home sales to fall 7.6% in 2006 and a further 1.7% next year. New homes sales are expected to fall 16.1% in 2006 and 7.1% in 2007. Housing starts are projected to fall 9.6% this year and 9.8% next.

The forecasts are slightly below the group's projections from a month ago.

Compared with the group's forecasts at the beginning of the year, the expected declines in existing-home sales and housing starts for 2006 are about twice what was expected, and the expected drop in new-home sales for 2006 is about three times as severe. Rex Nutting is Washington bureau chief of MarketWatch.