2006 Roundup

2006 was a real turning point in our local market. I pulled together some of the forecasts for 2007 and beyond that might interest first time buyers or owners thinking of buying up to bigger properties this next year.

There are many voices chiming in on what to expect from this step forward. The National Association of Realtors has predicted that things will be looking up from now on, as we have hit the bottom.

An article on the NAR web site says, "After bottoming in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turnaround by summer, according to the latest NAR forecast. David Lereah, NAR's chief economist, said annual totals for existing-home sales will be comparable between 2006 and 2007. 'Steady improvement in sales will support price appreciation moving forward,' he said."

Inman news reported similar projections. "We're going to hit the trough in the first half of 2007," said Frank Nothaft, chief economist for Freddie Mac and a panelist for the "Housing Outlook: 2007" session. Other panelists included representatives from the California Association of Realtors, Rutgers University and the University of Pennsylvania.

Forcasts need to be localized and for California Inman News reported, "existing-home sales fell about 23 percent to 24 percent in 2006 compared to the prior year, and that is expected to be followed by another 7 percent decline this year, said Leslie Appleton-Young, chief economist for the California Association of Realtors. Overbuilding has left a large inventory of properties on the market in some areas, she said -- there is about a 10-month supply of properties for sale in one region of the state, she said, though she expects excess inventory to be absorbed within about a year."

In the East Bay that may be most relevant in the condo market.

The Wall Street Journal's latest semiannual economic forecasting survey offered an optimistic outlook for 2007. The service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates. That would allow the economy to expand at a rate fast enough to keep investors happy, but slow enough to keep inflation at bay.

THE WSJ reported that its panel of 60 economists predicted that inflation-adjusted gross domestic product, a broad measure of economic activity, will grow at an annualized rate of 2.3% in the first half of 2007 and 2.8% in the second half. That's up from a sluggish 2% in the third quarter of 2006, but still far below the robust annual growth rates of 3.2% for 2005 and 4.1% for early 2006.

The economists surveyed expect year-to-year inflation to decline to 1.7% in May from 2.0% in November. As a result, they expect the Fed to shift its focus from fighting inflation to helping the economy grow, lowering short-term interest rates to 4.75% by the end of 2007 from the current 5.25%.

That's a big change from six months ago, when forecasters saw the Fed's battle with inflation as the greatest challenge facing the economy. "The Fed was hoping to slow the economy down enough to take the wind out of inflation without triggering a recession," says Nariman Behravesh, chief economist at consulting firm Global Insight in Waltham, Mass. "So far it looks like it has succeeded."

Stay tuned for some very local numbers about house costs in 2006. I'll post them by the end of the weekend.

Sharon