WASHINGTON – U.S. home sales will be a good deal weaker this year than earlier forecast and prices are likely to fall below year-ago levels temporarily as buyers stay on the sidelines, a realtors group said Thursday.
The National Association of Realtors said it changed its forecast because the psychology of the market had shifted, with sellers now willing to negotiate on price and some potential buyers waiting for a more opportune time to make a purchase.
"Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," NAR chief economist David Lereah said in a statement.
"This is a normal pattern during a market correction, but home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms," he added.
NAR in recent months had acknowledged the possibility home prices could dip below year-ago levels, but the latest projection marked the first time its regular monthly forecasts had incorporated likely declines.
If median prices for existing homes were to fall below the year-ago level in any given month, it would mark the first year-on-year decline since February 1993.
While NAR said such drops were now likely, it said prices should close out the full year with gains, though they would be much smaller than in the past two years.
It said the median price for existing homes — the price at which half of homes sell for more and half for less — should grow 2.8 percent to $225,900. By comparison, those prices shot up 12.4 percent last year and 9.3 percent in 2004.
The group also said the median price of new homes would likely inch up 0.2 percent to $241,400, well below the 9 percent and 13.3 percent gains posted in the past two years, respectively.
The sharp slowdown in price appreciation and the possibility of price declines comes as sales stumble and threaten to slow the overall pace of U.S. economic growth.
NAR said sales of existing homes were set to drop 7.6 percent this year to 6.54 million. A month ago, it said it expected existing home sales would only fall 6.5 percent.
The association also revised lower its 2006 forecasts for new home sales and housing starts.
It said new home sales would likely tumble 16.1 percent to 1.08 million units, compared to a previous forecast of a 12.8 percent drop, while builders would break ground on just 1.87 million units this year — 9.6 percent below last year.