Drop in home sales, prices forecast to persist into ’08

U.S. home sales and prices will fall further in 2007 and the housing slump will persist into next year as builders curtail production, the nation’s largest real estate trade group said Wednesday.

The National Assn. of Realtors reduced its sales forecast for the seventh consecutive month and said sales of existing homes would fall 5.6% to 6.11 million in 2007. Prices will drop 1.4%. In 2008, single-family housing starts will probably fall to their lowest level since 1995, the Realtors said in a statement.

Stricter mortgage standards, a glut of properties and interest rates close to an 11-month high will stall sales, said Lawrence Yun, an economist with the group. Next year’s building decline will also cut purchases of appliances and home supplies, trimming residential construction spending 1% to $495 billion, the lowest since 2002, he said.

“Housing will continue to be a drag to economic growth all the way through 2008,” Yun said.

Separately, the National Assn. of Home Builders forecast a 23% drop in the number of new single-family houses that will be started this year compared with 2006, followed by a 2% growth rate in housing starts in 2008.

“Most indicators point toward further deterioration,” said David Seiders, the association’s chief economist.

A survey that his group conducted in June of 400 home builders found that 45% believed tighter lending standards were taking a toll on home sales, and 28% said stricter standards were raising sales cancellation rates.

A separate report from the Mortgage Bankers Assn. showed that mortgage applications increased last week, with a rise in demand for home purchases indicated even as interest rates climbed.

The group’s mortgage applications index was up 1.1%, but several analysts said it had fluctuated too much with up-and-down interest rates to be read as a bright spot for the sector.

The housing industry forecasts came as Federal Reserve Bank of Philadelphia President Charles Plosser said the housing slowdown was unlikely to curb economic growth next year.

“The consequences of the declines in housing activity and house prices, in my view, have so far not derailed the prospect that economic growth will return toward trend at the end of 2007 and in 2008,” Plosser said in a speech to the European Economics and Financial Centre in London.

U.S. home builders see no prospect of a housing recovery. Fort Worth-based D.R. Horton Inc., the second-largest builder by revenue, and Calabasas-based Ryland Group Inc. this week forecast losses for their latest quarter and said orders plunged. Both plan to take write-downs on land and inventory.