Nobody Knows the Trouble We’ll See:  Various Real Estate Predictions for 2007

December 28, 2006

Experts from the worlds of real estate, finance, and economics have all made predictions recently about what the home and condo market will look like in 2007—and what effects it will have on the rest of the economy. Here’s a sampling of their guesswork:

According to the Securities Industry and Financial Markets Association, the lowest point of the downturn in housing is behind us, but the period of “correction” isn’t over yet.

“With home building and permit volumes below sales levels, the market is beginning to clear, although price weakness may continue based on buyer and home builder caution,” says the Association. “The downturn should end within six to 12 months.”

The group predicts that 30-year fixed-rate mortgage rates will reach 6.5% by the end of 2007, and that total home and condo sales will drop by 0.4 million units to 7.2 million next year. Sales in 2006 were at 7.6 million, down from 8.4 million in 2005.

A little more rosy were the predictions from Freddie Mac, whose chief economist Frank Nothaft said that the market correction is about two-thirds finished, and housing should stabilize by mid-2007.

“We expect house prices, like housing starts and sales, to trough in the fourth quarter [of 2006], with prices appreciating 3.4 percent in the first half of 2007,” Nothaft predicted this month.

He also said that 2006 existing home and condo sales would average 6.74 million units, while 2007 sales would average 6.22 million.

The National Association of Realtors’ chief economist David Lereah was, as usual, optimistic. The NAR forecasts that existing home and condo sales will rise over the course of 2007, eventually meeting the pace of sales in 2006.

“Roughly three-quarters of the country will experience a sluggish expansion in 2007, while the other areas should continue to contract for at least part of the year . . . General gains in value next year will be modest, by historical standards,” Lereah said.

The NAR predicts that 2006 sales of new homes and condos will drop to about 1 million, a slide of 17.7 percent. They will continue to fall an additional 9.4 percent in 2007, to 957,000.

Both the Mortgage Bankers Association and the UCLA Anderson Forecast assert that the housing market decline will not drag the rest of the nation’s economy down with it.

“While residential investment will almost certainly decline further in the first half of next year, the magnitude of the drag on overall economic expansion should diminish,” said the Mortgage Bankers Association.

Its chief economist, Doug Duncan, went on to say that “Some encouraging signs already have begun to appear in the housing picture. Total single-family-home sales, for example, have remained roughly unchanged over the past four months, and applications for loans to purchase homes, a useful indicator of future home sales, have picked up in recent weeks.

“Our forecast, while revising down expected growth this quarter and next, still anticipates a return to trend-like growth by the second quarter of next year.”

Edward Leamer, director of the UCLA Anderson Forecast, maintains that housing-sector woes won’t be enough to trigger a national recession.

“The decline in the housing sector is contributing to job loss in the construction sector, but there are no significant losses to be found on the manufacturing horizon,” he reported in December. “Without the accompanying decline in manufacturing jobs, the losses in construction will not be enough to cause a recession.

“If you are a builder or a broker, it will fell like a deep depression,” added Leamer, “but the rest of us will hardly notice.”