Home prices expected to fall further

U.S. home price declines this year are going to be steeper than forecast earlier because of the drop in sub-prime mortgage lending and the adoption of stricter loan standards, the National Assn. of Realtors said Tuesday.

The 2007 median price for an existing home is likely to drop 1% to $219,800 from 2006, compared with its earlier forecast of a 0.7% decline, the Chicago-based association said. The Realtors group now projects that the median price for new homes will fall $100 to $246,400, the first decline since 1991, compared with its previous estimate of a 0.4% increase.

Record-high defaults by sub-prime borrowers, those with flawed or insufficient credit histories, have prompted mortgage lenders to limit the number of people who qualify for a home loan, the group said. At the same time, unemployment is down and household incomes are up, which should help bring a housing recovery in 2007’s third and fourth quarters, it said.

“We see this as a soft landing with home sales rising gradually in the second half of the year and prices recovering a bit later,” Lawrence Yun, the group’s senior economist, said in the report.