Marti Timple/FOTOLIA

Housing industry economists are forecasting that the slumping housing market will "bottom out" sometime soon, perhaps as early as the fourth quarter of 2006.

In a conference call with reporters Dec. 21, Fannie Mae Chief Economist David W. Berson said that while he and two other industry forecasters differ on the timing, "The key is we all think that the housing downturn is close to an end....It's not going to continue throughout 2007."

David F. Seiders, chief economist with the National Association of Home Builders, says single-family housing starts dropped 14% last year, and will fall to 1.476 million in 2006 and decline further next year, to 1.256 million before rebounding about 10%, to 1.38 million in 2008.

Seiders notes that single-family housing sales have had "quite a downswing" this year, with a "peak-to-trough" decline of about 23%. But he says he is hopeful that the falloff will be "bottoming out in the fourth quarter of this year."

He also forecasts that housing prices will decline about 1 percentage point next year.


Fannie Mae's Berson predicts that in 2007, housing prices will be down 1% to 2% and total home sales will dip 5% to 6%. But he believes that by the middle of next year, prices will stop declining and sales will pick up.

David Lereah, chief economist with the National Association of Realtors, says "We think we're pretty close to the bottom," but adds, "Nobody really knows where the bottom is." Another key question, Lereah says, is whether the market will have a "soft landing" or get even worse before there's an improvement.


If the low point does come soon, Lereah adds, "That's good news," because that means the market contraction will be shorter than those in 1980 and 1990-91. He sees some encouraging developments, including an uptick in mortgage applications and "signs of bottoming out" for sales of existing homes.

The inventory of existing homes appears to be in the range of 7.2 to 7.3 months, Lereah says. "You'd like to see it at 5.5-6.5," he adds. Lereah also notes that "All real estate is local" and some areas show a much gloomier picture, with parts of southern Florida showing "double-digit months" worth of unsold housing inventory.

Other markets with problems include California from San Diego to Los Angeles and Santa Ana to San Francisco, Lereah ssays. He also sees large inventories on the East Coast in some areas from Delaware to Florida.

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