Prices headed south

Average home prices are headed down over the next few quarters, according to several leading housing economists, and growth isn't expected to resume until at least 2008. The predictions were made on October 25th at the National Association of Home Builders 2006 Fall Construction Forecast Conference, held in Washington, D.C. Builders, lenders, product manufacturers and others attend the semiannual conference to learn about economic trends in residential home building.

At the forecast conference, David Seiders, chief economist of the National Association of Home Builders, predicted that average prices of single-family homes -- up 10.1 percent in the second quarter from a year earlier -- will stall in the second quarter of 2007, and then drop one percent in the third quarter and 0.5 percent in the fourth quarter, before recovering slightly in 2008. It is the first time that the trade association has ever predicted a price decline. Mr. Seiders pegged his forecast to quarterly changes he expects will occur in the Office of Federal Housing Enterprise Oversight's Housing Price Index, which has never showed a year-to-year decline in home prices.

Other economists at the semiannual conference were more pessimistic. David Berson, chief economist at Fannie Mae, said that average home prices could fall two to three percent by the middle of next year and not rise until 2009. "Prices have gone out of whack with income growth," he said. Mark Zandi, chief economist of Moody's Economy.com, expects prices will fall between two and four percent by the middle of next year, once sellers finally accept that the boom is over.