The chorus is growing in the chant that housing has struck bottom and will slowly rise again. A new report by the National Association of Realtors suggests rising existing home sales through 2007 and 2008 and a turn-around for new home starts by summer 2007, but homes won't appreciate over inflation rates for the first time in decades. And that's a little scary.

Since 1968, when the NAR first began keeping records, homes have beaten inflation by one or two percentage points annually, making them a good investment, coupled with tax incentives and other benefits, for homeowners. However, between 2001 and 2006, homes appreciated 50 percent, causing affordability issues to put a stop to rising prices. Then the financial press began drumming on the housing market as a bubble bursting, causing buyers to sit on the sidelines. The effect was slower sales, falling prices and buyers and sellers at a standoff. The only saving grace in a flat appreciation scenario is that homebuilders are curtailing building new inventory. After two years of building below the rate of household formation, the housing market will start to improve as new forming households seek the benefits of homeownership.

David Lereah, NAR's chief economist, says, "We have to keep in mind that we were still in boom conditions during the first quarter of 2006 with a high sales volume and double-digit price appreciation. “We're starting 2007 from a relatively low point, so even with a gradual improvement in sales it'll be pretty much of a wash in terms of annual totals. The good news is that the steady improvement in sales will support price appreciation moving forward.”

NAR economists expect existing-home sales for 2006 to come in at 6.50 million, making the year the third highest on record. For 2007, the trade organization predicts a total of 6.42 million homes sold for 2007.

As much as new home starts have plummeted, builders still recorded the fourth highest year in sales at 1.06 million. Projections for 2007 are approximately 957,000. Total housing starts for 2006 are likely to come in at approximately 1.81 million units, with 1.51 million forecast in 2007, which would be the lowest level in a decade. Builders, says the NAR, are pulling back on new construction to support prices of remaining inventory.

Helping to make home purchases more attractive will be mortgage rates held under seven percent. The 30-year fixed-rate mortgage will probably rise to 6.7 percent by the fourth quarter of 2007, says the NAR. Last week, Freddie Mac reported the 30-year fixed rate at 6.18 percent -- far below earlier consensus forecasts.

“The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,” Lereah says.

But fears of a slowing economy and a continuing fall in housing prices until inventories are absorbed still has many buyers fearful.

Inflation, as measured by the Consumer Price Index, and calculated by the NAR as part of its economic outlook is anticipated to rise about 2.2 percent annually.

The NAR predicts that the national median existing-home price for all of 2006 is expected to have risen 1.1 percent to $222,100, and then gain 1.5 percent in 2007 to $225,300. The median new-home price, after rising only 0.3 percent to $241,600 in 2006, is projected to grow 3.0 percent in 2007 to $248,900.

For the first time in decades, housing prices won't beat inflation.

Why such a difference? Materials alone cause new home prices to rise approximately four percent annually, according to the NAHB. One of the reasons new homes are more expensive is because buyers have been demanding more square footage and luxury finish outs with materials such as granite countertops and hardwood floors. If builders are going to sell below their annual materials costs, that suggests several possibilities:

1. New homes will have smaller square footage and lots, and retain luxury finishes

2. Amenities that many buyers have taken for granted will be packaged as "upgrades"

3. Builders will seek to cut costs with lower quality materials while maintaining square footage

4. Some materials such as hardwood floors will still be available for luxury homes, but will no longer be offered in homes below a certain price point

NAR believes that the economy will not go into recession and that housing for the long haul is a "sound investment.” Inflation, while growing, is well below the rate of last year at 3.2 percent. Growth in the U.S. gross domestic product is seen at 2.5 percent in 2007, compared with 3.3 percent last year. Inflation-adjusted disposable personal income should grow 3.4 percent this year, following a rise of 2.7 percent in 2006.

Published: January 11, 2007

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.