Real Estate Expected to Flounder in 2007

Real Estate Expected to Flounder in 2007

Although few experts predict that home values will fall dramatically in 2007, many economists say that prices won't improve for 12 to 18 months. And without the cushion of rising home equity — which softened the blow of high oil prices last year and kept consumers buying big-ticket items at a rapid clip — Americans may lose confidence in their finances, and the broader economy is likely to suffer.

Ambitious building booms in many markets in the past half-decade, combined with mortgage interest rates that have increased about 1 percent in the past year, have resulted in residential real estate stagnation. The gridlock defies conventional wisdom, stubbornly remaining neither a buyer's nor a seller's market.

"We are currently experiencing the worst of the market freeze, which is being exacerbated by the gap between the buyer's desire for bargains and the seller's fantasy of what they once thought their homes would be worth," said Diane Swonk, chief economist for Chicago-based Mesirow Financial, who forecasts a rebound in early 2008. "The good news is that there are some signs of stabilization. The bad news is that a substantial backlog of unsold homes still exists."

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