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," Seiders said at the NAHB's annual convention in Orlando earlier this month. "But we've got one heck of an inventory overhang."

David Berson's outlook hasn't changed at all since a press briefing in January, when the Fannie Mae economist said the market is in the home stretch. He said there a still a few bumps in the economic road, but the worst is in the rear view mirror.

"I don't think we're quite at the bottom point," Frank Nothaft agreed. "There's still a little room for the market to weaken."

Seiders of the NAHB 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, 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 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 on overall house values "for some time."

If prices do, in fact, move lower this year, it will be the first time they have done so since the Great Depression, he pointed out.

Seiders also reported that widespread cuts in house prices and deepening sales incentives have brought consumers back into the market. According to the NAHB's proprietary monthly survey of 30 large builders, which account for about 25 percent of all new home sales, cancellations have declined, leading to "slight improvements" in net sales and closings.

Other builder surveys show that traffic to new home communities is picking up, which, along with reports from the Mortgage Bankers Association that purchase money applications are on the rise, "also supports the proposition that housing demand has stabilized," the economist added.

However, Seiders conceded that he may be a tad too optimistic, a point both GSE economists emphasized in their remarks.

Even if sales are solidifying, Berson said, it will be some time before they outpace production numbers and prices start to rise again. "It's the unsold inventory that has caused prices to drop, and most of that has to be sold off before prices can go back up," he said.

Freddie Mac's Nothaft advised builders to look past national figures and study what's going on in their own individual markets. "National numbers obscure local trends," he warned. "Some markets have really crashed, but others are holding up fairly well."

At the same time, he said that if a local market is not doing well now, there's little chance it will get out of sick bay before next year.

Published: February 21, 2007

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.