Fannie Mae Forecasts Further Home Sales Drop in 2007

Fannie Mae has come out with the following prediction for 2007: Sales of new and existing homes will continue their slide this year, due largely to investors pulling out of the housing market.

In an economic and housing outlook, Fannie Mae said sales of new homes are expected to drop by 7.1% in 2007, while sales of existing homes are expected to drop 8.1% this year.

Fannie Mae economists said the projected sales for 2007 would be the lowest since 2002. Florida mortgage applicants should use this forecast to their advantage, negotiating down prices because they’ll have little competition when dealing with sellers.

The two-year drop in sales during 2006 and 2007, the economists said, would be the largest since the 1989-1991 housing downturn.

“We expect additional declines later this year as investors continue to leave previously hot housing markets, although the largest drops may be behind us,” wrote Fannie economists, including chief economist David Berson.

Across the country, home prices should fall by between 1% to 2% this year, Berson predicted at a press briefing Wednesday.

However, he said, “most of the United States will probably not see home price declines at all - simply more modest gains.” He said the modest gains combined with significant declines in some parts of the country would produce the estimated 1% to 2% overall gain.

Later in the year, an end to the glut of unsold homes may help prices rise.

Berson also told reporters at the briefing Wednesday afternoon that the national and condominium market is suffering as investors are pulling out.

Also, Fannie is projecting drops in national and Florida home mortgage originations for last year and this year.

For 2007, Fannie Mae is predicting a decline of 11.2% in purchase originations. It would follow an estimated drop of 3.1% in 2006.

Florida mortgage refinance activity, meanwhile, is projected to change little this year thanks to refinancing out of upward-adjusting adjustable rate mortgages, or ARMs.