Want the news summarized?
Subscribe to The Morning Report.

The latest Wall Street Journal survey of economists finds more than half (25 economists, of 48 who answered the housing question) predicting no change or a decline in home prices in 2007.

That leaves the average prediction for home prices in 2007 at an increase of 0.45 percent. (The lift came from five economists forecasting gains of 5 percent or more.)

The report (subscription only) showed that the average forecast for home appreciation would be “well below” the rate of inflation in 2007.

Here’s some context:

Moreover, broad-based declines in home prices are unusual. The Office of Federal Housing Enterprise Oversight’s home price index, upon which the economists based their predictions, has never posted an annual decline since its first calculation, in 1975. The last time that the index trailed inflation was in 1996, when home prices rose 2.6% compared to a 2.9% inflation rate.

It’s helpful to see what the Ofheo index had predicted in recent years:

For this year, the economists forecast a 3.5% rise in the home-price index. The index rose 13% 2005 and 12% in 2004.

Here’s one economist who forecast a decline for next year:

“The housing correction is just in its early stages now,” said Joseph Carson of AllianceBernstein, who forecast a 5% decline for 2007. “Existing home prices have come down to no-change on a year-to-year basis. For new homes, prices are below year-ago levels when you include added features. The prices will have to go lower to give demand a lift in short term.”

Mr. Carson expects broad-based difficulties throughout the nation. “Affordability is an issue across the board,” he said, adding he believes a major correction is inevitable.

And another, who falls in the “no change” camp:

David Wyss, chief economist at Standard and Poor’s, said he expects prices to change little nationally. He expects drops in areas that are overvalued, such as Florida, California and the Northeast, or those that are especially susceptible to economic weakness, such as the Great Lakes region.

“The most volatility will come in areas like Florida, where there are a large number of second homes and investment properties,” he said.

KELLY BENNETT

Leave a comment

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.