Fannie Mae has once again lowered its projections for home sales and starts for 2007.Home prices will continue to fall as well, chief economist David Berson said in his monthly forecast. If he is on target, the projected level of sales -- 900,000 new homes in 2007 and 5.8 million resales -- would be the lowest since 2002, and the two-year decline (2006-2007) would be the largest since the housing downturn of 1989-1991. The "significantly larger decline" in production -- 14% -- stems from the need to cut into the "near record" inventory of completed but unsold homes. "The large number of unsold units also is putting pressure on house prices," Mr. Berson said. He said he expects prices in the part of the market served by his company and its chief rival, Freddie Mac, to remain unchanged, but that he thinks prices in the more expensive segment above the $417,000 conforming-loan limit will be off by 2%. The economist has also cut his projection for mortgage originations. Now he says production "will slow" to $2.47 trillion, a 10.5% drop from $2.76 trillion in 2006. About half the new loans written this year will be refinancings, he said, as adjustable-rate mortgage borrowers continue to jettison their loans before they reset.

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