Existing-home sales are projected to trend upward in 2008 but a recovery for new-home sales is unlikely before 2009, according to Lawrence Yun, the chief economist of the National Realtors Association.

Yun said that the worst part of the credit crunch has already worked its way through the data. "The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming," Yun added in a news released last Monday.

"Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels," he added.

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in October, increased 0.6 percent to an index of 87.2 from an upwardly revised reading of 86.7 in September. It was the second consecutive monthly gain, but remained 18.4 percent below the October 2006 index of 106.8. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” Yun said.

New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.

The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.

Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008.

The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006.

Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.

Among Yun's conclusions are:

• There will be improvement in the Northeast housing market reaffirms a trend of recovery. 
• The existing-home sales are likely to total 5.67 million this year, the fifth-highest on record, and rise to 5.7 million in 2008. 
• The home price growth in the affordable midsection of America will help raise the national median existing-home price slightly in 2008 and price appreciation will return to more normal patterns in 2009.

"We can't emphasize enough how much local conditions vary, even within a given area," Yun said. "So it's important for consumers to make decisions based on local market conditions."