Forecast: House Price Drop May Hurt Economy

Median house prices will decline by 8% to 10% over the next nine months and could create a serious drag on the economy, according to Allen Sinai, president of Decision Economics.Even if the downturn in sales and construction is over early next year, there will be a huge inventory of unsold homes overhanging the housing market, Mr. Sinai told a housing symposium hosted by the Office of Thrift Supervision. "[M]edian prices of new and existing homes likely will continue to decline, particularly prices in those parts of the United States that have been bid up to unsustainable levels," the economist said. The National Association of Home Builders is forecasting that house prices will decline by 3.5% in 2007. NAHB chief economist David Seiders says he expects single-family housing sales to bottom out during the current [fourth] quarter, but not the condominium market. And residential construction will bottom out in the first quarter of 2007, he forecasts.