Real Estate Expected to Flounder in 2007

Donald Anthony stands in the kitchen of a home he is trying to sell in Antioch, Calif., Tuesday, Nov. 28, 2006. Anthony has knocked down the price of his 4-bedroom ranch not once, not twice, but three times -- and along the way put more than $40K worth of improvements into the place -- and still has not sold it. (AP Photo/Jeff Chiu) (Jeff Chiu - AP)

"In order to play this ponzi scheme, the value of the homes had to go up faster than the economy grew and faster than people could service their debt. We've reached that limit," Morci said. "The housing market sustained the economy at a time of very large trade deficits. It's been a false prosperity."

In addition to macroeconomic forces, regional U.S. housing markets faced particular challenges.

In expensive coastal cities, economists say, price appreciation hit a wall. San Francisco and Boston _ where many investors enjoyed double-digit property gains in the late 1990s and the first half of this decade _ have simply become unaffordable.

The number of Californians who could comfortably pay the mortgage on an entry-level home fell to 24 percent in the third quarter _ down from 44 percent in 2003, according to the California Association of Realtors. The median price statewide was $563,190.

"I don't see how the economy can continue with these prices," said Stephen Levy, senior economist of the Center for Continuing Study of the California Economy.

Housing prices in New England grew an average of 10 percent per year from 2000 to 2005, compared with 8.3 percent for the nation as a whole.

But a forecast released Nov. 14 by the New England Economic Partnership, a nonprofit forecast organization with members are from private industry, government and academia, projects prices in New England will be flat through 2010, below the U.S. forecast of 2.1 percent growth per year. Housing prices in Massachusetts are expected to decline 9 percent through 2010.

"Areas along the coast of the nation and the large urban areas tend to see stronger price gains in housing upturns, and stronger declines in downturns," said Celia Chen, a housing economist with Moody's Economy.com in West Chester, Pa.

In Sun Belt havens such as San Diego, Las Vegas and Phoenix, overzealous construction resulted in a glut of new homes and condos. Real estate experts say sellers and developers there will struggle throughout 2007.

"We have to work off the inventory," said Daniel Nussbaum, a licensed investment adviser and CEO of Calabasas-based TheUSARealty.com. "I honestly think we're past the worst of it, but if you don't take out your magnifying glass you might not notice."

Florida will likely remain the toughest market for buyers and sellers.

Building frenzies in Miami, Orlando and the Caribbean coast resulted in a plethora of for-sale signs. Developers desperate to unload inventory offer free granite countertops, appliances and furniture _ even cars, vacations and mortgage payments for up to six months.