U.S. New Home Sales Seen Down
16.1% in 2006 by Trade Group

New and existing home sales are expected to fall substantially this year, while home price appreciation will also slow precipitously, as the market works through an inventory backlog, according to new projections released Thursday by the National Association of Realtors.

New home sales are projected to fall 16.1% to 1.08 million in 2006, and existing home sales dip 7.6% to 6.54 million, according to revised NAR projections.

NAR expects housing starts to drop by 9.6% to 1.87 million this year.

Home price appreciation is also expected to slow considerably from previous double-digit gains. The median existing-home price will grow 2.8% this year to $225,900, with the median new home price rising only 0.2%, according to NAR.

The trade association said prices for new homes were depressed by builders cutting prices and offering incentives to reduce inventory.

David Lereah, NAR's chief economist, said the dramatic downshift in price appreciation was noteworthy. "A year ago we had record home sales and tight supply with buyers bidding over the asking price," Lereah said in a statement.

"Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," he added.

The cooling housing market means investors who purchased homes last year intending to sell them shortly thereafter could face losses.

"Buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned," Lereah said.

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