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Real Estate Guide 2007
Analysis by region
National statistics are meaningful, but in real estate "location, location, location" means local trends trump all.
Analysis by region
Real estate forecast for 30 areas in 2007
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Chris Porter, senior consultant with Irvine, Calif.-based John Burns Real Estate Consulting, predicts the market will hit bottom in mid- to late-2007. Spots such as San Diego and Sacramento, Calif., which got hit early, may be among the first to emerge, he says.

Sales volumes will be the first to stabilize, followed by resale listings and lastly, prices. "It's going to take a while for sellers to accept the fact that the market has changed," Porter says, noting that builders are dropping prices 15 percent to 20 percent in some spots.

In a recent quarterly home report by the National Association of Realtors (NAR), the national median existing single-family home price was $219,300, a 2.7 percent decline from fourth quarter 2005, when the median price was $225,300.

Of the 149 metropolitan areas studied, 71 had price gains in fourth quarter 2006, compared with the fourth quarter of 2005 (Atlantic City, N.J.; Salt Lake City; and Trenton-Ewing, N.J., topped the list) and five were unchanged.

Richard Moody, chief economist and director of research for Texas-based Mission Residential, says the increase in sales and prices during December and even November, which some took as a sign that the worst is over, was more of a blip because of warmer-than-usual weather in some parts of the country and seasonal adjustment.

He believes the first half of 2007 will look much like the second half of 2006, with housing starts continuing to decline and sales further softening.

The NAR, meanwhile, forecasts that the national median existing-home price should grow 1.9 percent to $226,200 in 2007, which senior forecast economist Lawrence Yun points out is certainly not the price collapse some people are anticipating.

Factors including the number of unsold homes, interest rates and consumer confidence play into how well experts believe the market will perform this year.

"There's just a lot of inventory in the market right now, and we just have to burn through that inventory," Porter says.

The 30-year fixed-rate mortgage should rise to 6.7 percent by the second half of the year, according to the NAR. That should not hurt the housing market too much, but if mortgage rates rise to 7 percent or 7.5 percent, the slowdown may continue much longer, Yun says.

Ingo Winzer, president of Massachusetts-based Local Market Monitor, a real estate analysis firm, disagrees.

"Interest rates are still low by historical standards, although not as low as a couple of years ago," he says. "I do believe that interest rates will drift upward and that will be bad for the housing market."

In addition, Moody believes that the "dramatic lowering" of lending standards that fueled home sales from 2005 to 2006 will impact the market for years to come.

"We're already starting to see a significant increase in delinquencies and foreclosures," he says. "I think we're really just seeing the tip of the iceberg. It's going to persist the next two or three years."

The NAR calls for existing-home sales to gradually rise to 6.44 million in 2007 and into 2008 (projected at 6.64 million), while new-home sales will continue to slide, with a turnaround expected in late 2007. Total existing-home sales in fourth quarter 2006 were at 6.24 million units, down 10.1 percent from fourth quarter 2005.

However, the sales pace in six states increased, and one experienced no changes.

Big areas to watch over the next two years: speculative markets driven by investors, such as Florida, where prices will decline an expected 10 percent, and California, where prices are expected to level off rapidly; as well as the Midwest, which is suffering from automaker layoffs and downsizing.

Bankrate's forecast of the 2007 residential real estate market spotlights 30 metropolitan areas -- including a picture of current and future prices, as well as factors such as interest, foreclosure rates and affordability -- is culled from experts across the country, market trends and industry data.

-- Posted: March 8, 2007
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