For the first time in 38 years, since the National Association of Realtors began tracking housing prices on a national scale, home prices are projected to fall instead of going higher, the trade group recently reported.

Median sales prices of existing homes are expected to fall 0.7 percent in 2007 to $220,300 before recovering to a modest 1.6% gain in 2008, says the NAR, following a modest 1.0 percent rise last year. The median new-home price is projected to increase 0.4 percent to $246,200 this year, after gaining 1.8 percent in 2006. Modest growth is expected next year, with existing-home prices increasing 1.6 percent and new-home prices rising 2.0 percent.

Reason to panic, or should Realtors and their clients take this number in stride?

According to NAR chief economist David Lereah, 2007 should still come in as the fourth-greatest housing market on record. That's hardly a rout, but he cautions that the housing market should be impacted by tighter lending standards due to the subprime loan debacle.

Over two dozen subprime lenders have gone bankrupt because many of their borrowers were unable to repay high-risk adjustable rate loans once they reset to higher interest rates. While many pundits blame overeager lenders, mortgage brokers and real estate professionals for helping to put starry-eyed buyers into homes they couldn't really afford, let's keep in mind that many buyers were willing participants, incentified by what they thought was a sure-thing investment.

But homeowners quickly learned that housing is subject to market cycles, like any other investment. Bad timing, as many markets turned from sellers' markets to buyers' markets, caught many homeowners unaware and unable to make their payments or sell their homes for the purchase price and transaction costs at break-even or better.

But subprime lending isn't the only thing skewing housing figures -- so are individual markets. In other words, the national medians and averages calculated by the NAR may not be an apples-to-apples comparison across the nation.

For example, California, Florida, and Nevada are down sharply, but does that indicate falling market conditions across the country?

"California and Florida are big downward skews," acknowledges Walt Molony, senior associate with NAR, "while Texas and other low cost areas are up strongly. We've never seen an annual dip in existing-home prices, but at the same time we've never seen such distortion in price data resulting from a shift in the composition of sales (from high-cost areas to low-cost markets). Most areas can expect slight gains, and some will see declines, so on balance overall prices will be essentially flat."

In fact, the NAR is currently working on a "weighted price report to compensate for the geographic shift," says Molony, that will be available to the media about April 24th.

"In the meantime, we look at unpublished, unadjusted snapshot sales data each month to get a sense of what is happening within each of the Census regions," he explains.

"In January, the unpublished snapshot data shows there were double-digit gains in Baton Rouge, Dallas, Houston, Raleigh, Rochester, Syracuse, Albany; and double-digit declines in Ft. Lauderdale, Orlando, Las Vegas, Phoenix and Sacramento," says Molony. "In February, the unpublished snapshot data shows double-digit sales gains in numerous low-cost areas (compared with a year earlier), including: Rochester, Albany Pittsburgh, St. Louis, & Indianapolis. Single digit gains include Dallas, Houston, San Antonio and Syracuse. Double-digit falls include Miami, Orlando, Ft. Lauderdale, Las Vegas, Phoenix, Sacramento."

Advises Lereah, it's the perfect time to refinance into safer loans for homeowners who wish to stay in their homes.

Last week, notes Lereah, Freddie Mac reported the 30-year fixed-rate mortgage was 6.17 percent. The 30-year fixed rate should rise slowly to 6.6 percent by the end of this year, so borrowers who need to refinance should act soon.

"We want people to be able to stay in their homes with mortgage terms they understand and can handle,” he says. “Simply stated, a loan with the lowest monthly payment probably isn’t in your best interests -- borrowers need to understand worst-case scenarios. If you’re in a mortgage you aren’t comfortable with, now is an excellent time to refinance, if you can, with historically low rates on safer conventional loans.”

For homeowners who want to sell, the news still isn't all bad. Existing-home sales are likely to total 6.34 million in 2007 and 6.52 million next year, in contrast with 6.48 million in 2006.

"Inventories remain well below the levels experienced during the last housing downturn in the early 1990s, and supplies are close to balance in many areas," says Lereah.

New-home sales will also dip below last year, says Lereah, projected to come in at 904,000 in 2007 and 935,000 in 2008, below the 1.05 million last year. Housing starts are estimated at 1.47 million in 2007 and 1.55 million next year, down from 1.80 million units in 2006. That's less than the projected formation of new households estimated by the U.S. Census at about 1.5 million new households annually.

Less competition from new homes should also help existing home sellers.

“Within given markets, most areas can expect minor price gains,” says Lereah.

In other projections, the NAR expects the unemployment rate to average 4.6 percent in 2007, the same as last year. Inflation, as measured by the Consumer Price Index, is likely to decline to 2.1 percent this year, compared with 3.2 percent in 2006, which should improve interest rates even more, or at least keep them low.

The bad news is that housing historically and typically beats inflation by one to two percentage points, so homeowners will experience real price losses of 0.7 percent plus 2.1 percent in inflation costs in real terms.

Growth in the U.S. gross domestic product is forecast at 2.3 percent in 2007, down from 3.3 percent last year, which could cause stock prices to fall, improving the outlook for housing investments once again.

The good news is that Inflation-adjusted disposable personal income will probably rise 3.1 percent this year, up from a gain of 2.6 percent in 2006, providing more income to offset losses in housing prices and as incentive to invest in housing.

“Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections," assures Lereah. "Housing remains a great long-term investment."

Published: April 12, 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.