2007 Real Estate Market Forecast

The shift to a slower national home market has presented challenges, says housing economists

Lawrence Yun, a senior economist for the National Association of Realtors®, says that although the home market has slowed nationally, it remains strong.

Addressing the local picture, economist Jerry Johnson says the Portland area saw a decline in sales after other areas of the nation and that the housing market here remains strong, though sales have declined in recent months. He pointed out that some communities may see recent run-away increases in home prices offset by modest declines.

Overall, the real estate market in the Portland metro area remains "much better than the remainder of the West Coast," Johnson said.

On the national scene, Yun said that new-home sales and pending sales of existing homes have been rising modestly, and were substantially higher than the low point of the national market in July 2006. The rate of new-home sales at the end of October was slightly more than 1 million, up from 979,000 in July. The pending home sales index was at 107.5, up from 105.6, during the same period. As of November, the index remained relatively the same at 107.

"Assuming falling interest rates and rising mortgage purchase applications in the final two months of 2006, the upward trend in sales will most likely continue," Yun wrote in the February issue of REALTOR^® magazine. "What’s more, the number of homes on the market appears to have peaked. Inventories are trending lower, a marked change from the increases in listings we saw in the first half of 2006."

One area of continuing weakness in the national market is construction of new homes. Housing starts and permits for single family homes have fallen by more than 35 percent from a year ago. Starts were at 1.18 million in October, down from 1.73 million a year earlier.

But Yun says that drop should be viewed as positive news.

"It’ll thin the inventory pipeline," he said. "The supply could well drop from more than seven months at the end of 2006 to six months by the end of the first quarter of 2007. A drop in the nationwide inventory to that level would signal a return to sustainable, historically more balanced conditions."

Yun said to look for the number of existing-home sales to grow 5 percent nationwide during 2007.

Though home prices have been falling nationally, they have been remaining strong in the Portland metro area. Yun said he expects national prices to begin to follow a positive trend line too, then begin to strengthen by the second quarter of 2007.

Yun projected that the national average price could reach $228,700 in the second quarter of 2007, up from $226,700 in the second quarter of 2006.

Business Confidence

A national survey of real estate firms projects better home sales conditions in the months ahead as buyers start returning to the market in modest numbers and as the number of sellers declines, helping to tighten inventories. The survey was mailed to 3,000 large and small real estate offices, and received 356 responses.

Modest Gains Ahead

A slight up-tick in existing-home sales, following a gain in the previous month, suggests that the housing market is poised for growth. Total existing-home sales, which include single-family houses, town homes, condominiums and co-ops, rose 0.6 percent in November to a seasonally adjusted annual rate of 6.28 million units from a pace of 6.24 million in October.

However, a statistically marginal dip in NAR’s leading home sale indicator suggests that gains will be modest. The November pending-sale index for homes was down to 107.0 from 107.5 in October.

The tables below give a statistical view of how some economists expect the nation's economy and the residential real estate market to perform in 2007, along with comparisons for 2005 and 2006.