A trade group for real estate agents on Tuesday lowered its forecast of 2007 existing home sales for the seventh straight month, predicting a drop of 8.6 percent from last year.
The National Association of Realtors’ revised monthly prediction calls for U.S. existing home sales of 5.92 million in 2007, down from 6.48 million last year. The forecast was below last month’s prediction of a 6.8 percent drop.
This year’s sales would be the lowest since 2002, when sales hit 5.63 million. Home sale prices this year are forecast to drop 1.7 percent to a median of $218,200.
Next year, the trade group expects existing home sales to climb to 6.27 million. It forecasts new home sales will fall 24 percent to 801,000 this year and 741,000 next year.
The forecast comes as delinquencies among borrowers with weak, or subprime, credit have risen dramatically over the past year, and other loans are showing weakness as well.
Lawrence Yun, NAR’s senior economist, said lower sales are related to the ongoing problems in the mortgage market for people with weak credit and a lack of funding for jumbo home loans above $417,000.
Those loans can’t be packaged into securities sold to investors by government-sponsored mortgage giants Fannie Mae and Freddie Mac. Lenders have been charging higher rates for these loans because they are not backed by Fannie or Freddie.
The real estate trade group described a big cutback in the construction of new homes as a “healthy trend” that will reduce inventory. The group projected construction of new homes will fall to 1.37 million this year and 1.26 million in 2008 from 1.80 million last year.
Last week, the NAR said pending sales of existing homes fell in July to the lowest level in nearly six years as borrowers struggled to finalize home purchases, particularly in expensive areas.
Investors around the world have been spooked by the U.S. mortgage market’s problems, amid uncertainty about how much they will grow. The Federal Deposit Insurance Corp. estimates that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.
The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages and heavy job losses in Ohio and other Midwest states.