NEW ORLEANS -- The worst of the housing downturn is over for three-quarters of the country, the National Association of Realtors' top economist said here earlier this month.

Noting that like politics, "all real estate is local," David Lereah, the chief economist of the nation's largest trade organization, said 74 percent of the nation's housing markets will once again be expanding "in a sluggish way" in 2007.

Mr. Lereah divides the country into five "divergent" sectors:

• Non-Boom Stallers, or places which never participated in the housing boom which began 15 years ago

• Non-Boom Gainers, or markets which didn't participate in the boom but grew nevertheless.

• Boom Lites, or markets which shared only slightly in the boom.

• Average Boomers, or places which took part in the explosion but only on an average basis.

• Hot Boomers, or places where house prices jumped out of sight.

Only the last group, which represents 26 percent of the country, still has a ways to go to work their way back to normal, Lereah said at NAR's annual convention here. "The correction is pretty much over with" for the rest, he added.

The economist would not hazard a guess as to how low prices would need to fall in the most overheated markets or how long it would take for them to hit bottom, saying it would be "pure speculation" on his part or that of anyone else.

But he did say that the places where speculators were most active will be the ones that take the longest to work their way back to equilibrium.

He also said price corrections should be welcomed, not feared. "What gives health to the economy is sales -- the number of transactions -- not price," he said. "Every 1 percent drop in prices qualifies 50,000 more potential purchasers."

"We now have the most favorable market for home buyers in years," Lereah said, noting that sellers are starting to be "more realistic about current market conditions" and pricing their properties more appropriately for the downturn.

"Conditions for buyers have improved because sellers are flexible now and mortgage rates are near historic lows," he said. "And sellers who have been in their homes for a normal period of ownership are still seeing very healthy returns on their investments."

Lereah expects existing home sales in 2007 to "coast" at roughly the same level as this year, which, despite a projected 8.6 percent decline to 6.47 million, will go down as the third best year on record.

New home sales, on the other hand, should fall 8.7 percent to 975,000 units, largely because many builders have slowed their pace of construction, according to the NAR economist. Such a decline would be on top of the expected 17.8 percent drop to 1.07 million units this year.

Despite the slow down, however, Lereah is still predicting slight increases in housing prices. For this year, he says the national median for existing homes should rise by 1.9 percent, to $223,700.

And for 2007, he expects a 1.7 percent increase to $227,500.

New homes prices, on the other hand, should slip by 1.1 percent this year, to $238,400, and then go back up 1.3 percent next year, to $241,400, he said.

Published: November 13, 2006

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