The National Association of Home Builders is projecting a first-ever overall decline in housing prices for 2007.Despite a pick-up in demand and a projected increase in housing starts by the second quarter, NAHB chief economist David Seiders is calling for a "modest downward" correction in prices this year on a national basis. "Sales activity has bottomed out already," Mr. Seiders said at the NAHB's annual convention in Orlando, Fla. "But we've got one heck of an inventory overhang." The NAHB economist said the large supply of standing inventory of both new and existing houses could be underestimated by 100,000 units because they were sold to investors who failed to close. The deals are counted as sales by the Census Bureau, but are not erased when they fall through. The result, Mr. Seiders said, is "an extra source of supply without any corresponding demand." Overall, he added, the new home market is "overbuilt by at least 400,000 units." The economist said he expects production to increase in markets not saddled with huge inventories, leading to an overall increase in starts. But he expects "the weight of the inventory overhang" to exert downward pressure of house values "for some time." If prices do move lower this year, it will be the first time they have done so since the Great Depression.

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