Lower-priced homes are a prominent group under construction. They could be below $150,000 in some markets or below $350,000 in more expensive areas like Washington, D.C., he says. Even with improvements in formerly hot markets, such as California, South Florida, Phoenix and Washington, D.C., they'll be the slowest to recover because of the supply.
"It's still going to be painful," Markstein says.
As for prices, despite widespread talk of declines, about half of the 150 metropolitan statistical areas actually witnessed rising home prices in the fourth quarter of 2007, according to the NAR, which expects existing home prices to decline 1.2 percent in 2008, reaching a median of $216,300. In 2009 the group expects median home prices to rise 3.2 percent to $223,200.
Johns Burns Real Estate Consulting estimates that resale transactions will drop to about 3.8 million, compared to 4.9 million last year.
"We do think that sale volumes are going to be sort of the first to stabilize," Porter says. "Then (we'll) see stabilization in listings, followed by stabilized prices."
The number of new home sales is likely to decline 17.7 percent to 637,000 in 2008 before rising 7.6 percent to 685,000 in 2009, according to the NAR. The median new home price is expected to fall 4.3 percent to $236,300 in 2008, and then increase 5 percent in 2009.
Financial factorsThe subprime crisis that set the industry back last year will continue to push progress back in 2008, says Porter.
Fiserv's Stiff agrees that forecasts are more pessimistic than expected because things deteriorated so badly in the fourth quarter.
"We keep pushing out the point where prices hit the bottom because I think everybody underestimated how severe the mortgage crisis would be," he says. "Even if you wanted to buy, you either couldn't get financing or had to pay a much higher interest rate than in the past."
Compounding the problem are foreclosures, which rose 75 percent, to a record 2.2 million foreclosure filings on nearly 1.3 million properties in 2007, according to Irvine, Calif.-based RealtyTrac. A total of 86 metropolitan areas reported increases from 2006, and the top 20 metro cities with the highest foreclosure rates were predominately in California, Ohio, Florida and Michigan.
Porter says fourth quarter 2007 data shows that sellers are finally starting to come down and accept lower offers.
"They realize in order to sell their home, they have to give in a little bit on prices," says Porter
But prices are not likely to bottom out in the resale market until 2010.
"(Sellers are) not willing to give up a lot of equity they think they have accumulated in their home over the last several years," Porter says.
Ingo Winzer, president of Massachusetts-based Local Market Monitor, agrees that in some markets, prices will fall for years to reach equilibrium.
"I think that we are in for several years of not necessarily a bad real estate market, but let's say a much quieter market than we've had the last five years or so," he says.
Winzer's data compares actual home prices in the market with an index using factors, such as local income, to determine if a market is overpriced or undervalued.
"There's not going to be a quick snapback of demand and snapback in volume, and particularly there's not going to be the same kind of growth in prices that we've seen in so many markets in the last five years or so," he says. "I also believe there is a moderate chance that we're actually in a recession right now, and a recession that's driven by the fact that consumers don't have any money left."