Realtors lower forecast for home sales

updated 10:51 a.m. ET June 6, 2007

WASHINGTON - A real estate industry trade group said Wednesday it expects sales of existing homes to drop 4.6 percent this year to 6.2 million.

Two months ago, the group had predicted a 2.2 percent decline for the year.

Sales of new homes are forecast to drop 18.2 percent to 860,000 compared with an earlier estimate of a 14.2 percent decline, the National Association of Realtors said in a statement.

The NAR also predicts the median price of existing homes, which make up about 85 percent of the market, will fall in 2007 for the first time since the 1960s, when the group began keeping records.

The median price for existing homes is expected to drop 1.3 percent to $219,000 this year, lower than the group's April forecast of a 0.7 decline.

The predicted decline comes after a 1 percent gain in home prices last year and an increase of more than 12 percent in 2005.

Next year, though, the NAR expects the market to rebound, and existing home prices are forecast to rise 1.7 percent.

In a statement, Lawrence Yun, the NAR's senior economist, said that sales have been stronger in lower-price markets, dragging down median prices, an effect he described as a "temporary distortion."

Federal Reserve Chairman Ben Bernanke said Tuesday that the residential real estate slowdown "appears likely to remain a drag on economic growth for somewhat longer than previously expected," but he added that the problems don't seem to spreading to the broader economy.

In February, the largest lenders tightened standards for borrowers as more homeowners with the weakest, or subprime, credit began to have problems keeping up with monthly mortgage payments.

Subprime lenders have seen a spike in defaults on payments, and many of those lenders have filed for bankruptcy while larger financial institutions have sold their subprime lending divisions.

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