Sales of existing homes may hit a 5-year low

WASHINGTON — Sales of existing homes in the U.S. are forecast to decline to a five-year low in 2007, a trade group for real estate agents said Tuesday, and the outlook for 2008 is worsening.

The ninth-straight downwardly revised monthly forecast from the National Association of Realtors calls for U.S. existing home sales to fall 12.7 percent this year to 5.66 million, down from 6.48 million last year and the lowest level since 2002.

Last month, the association predicted a 10.8 percent drop from a year ago, signaling a growing realization that the housing market woes are deeper than originally feared.

Federal Reserve Chairman Ben Bernanke told lawmakers in Washington last week that nearly 2.3 million subprime mortgages made to borrowers with weak credit will reset at higher rates — and often dramatically higher monthly payments — through the end of next year.

Analysts fear those loans will result in foreclosures that will further drag down the market.

The trade group's chief economist, Lawrence Yun, said the housing market is likely to experience a "modest" recovery next year as mortgage markets stabilize.

"It is possible for even higher home-sales activity than we're forecasting if buyers regain their confidence," he said in a prepared statement.

Yun's forecast shows existing home sales bottoming out in the current quarter, then rebounding by mid-2008.

However, many other economists are far less optimistic. They predict weak sales, sinking new home construction and falling prices through next year and emphasize that those problems could worsen if the economy sinks into a recession.

The Realtors group said the median price for U.S. existing homes — the point at which half sold for more and half for less — will sink to $218,200 this year and remain basically flat next year at $218,300.