May 8 (Bloomberg)—U.S. home price declines this year are going to be steeper than earlier forecast because of the drop in subprime mortgage lending and the adoption of stricter loan standards, the National Association of Realtors said.
The 2007 median price for an existing home likely will drop 1 percent to $219,800 from 2006, compared with its earlier forecast of a 0.7 percent decline, the Chicago-based association said in a report today. It now projects the median price for new homes to fall $100 to $246,400, the first decline since 1991, from its previous estimate of a 0.4 percent increase.
Record-high defaults by subprime borrowers, those with flawed or insufficient credit histories, have prompted mortgage lenders to limit the number of people who qualify for a home loan, according to the realtors’ report. At the same time, unemployment is down and household incomes are up, which should help bring a housing recovery in 2007’s third and fourth quarters, the group said.
If it weren't for a favorable economic backdrop, housing would probably have a hard landing,'' Lawrence Yun, the group's senior economist, said in the report.We see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later.’’
Sales of previously owned homes, 85 percent of the market, probably will total 6.29 million this year, the group said, less than the 6.34 million it called for on April 11. New home sales probably will fall to 864,000, lower than the 904,000 in the month- ago forecast, the association said.
2008 Recovery
In 2008, home resales probably will increase to 6.49 million, the highest since the record 7.08 million sold in 2005, the group said. New-home sales probably will total 936,000 next year, the highest since 2006.
This year mortgage rates probably will be lower than 2006, the report said. The average U.S. rate for a 30-year fixed home loan probably will be 6.4 percent, down from 6.5 percent last year, the association said.
Unemployment probably will average 4.6 percent this year, unchanged from 2006’s six-year low, and inflation probably will fall to 2.5 percent from 3.2 percent. Disposable personal income, adjusted for inflation, will rise 2.6 percent, matching last year’s gain, the group estimated.
The U.S. median price for a previously owned home has not declined since the real estate trade group began keeping records in 1968, despite regional declines. The last time the national median declined probably was during the Great Depression in the 1930s, Yun said.
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .