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SAN DIEGO-”We’ve seen a steady downtrend in housing inventory for well over a year, and home prices appear to be in the early stages of stabilizing,” according to NAR chief economist Lawrence Yun, who spoke about the National Association of Realtors’ housing and economic forecast during the NAR conference in San Diego, an event that drew more than 19,000 attendees. “With expansion of the tax credit to additional buyers through the middle of next year, and no major unforeseen events impacting the economy, home prices should rise between 3% and 5% in 2010, but with wide geographic differences,” Yun said.

Yun noted that the projections are enhanced by a tax credit expansion to more home buyers through the middle of 2010. “Given the success of the first-time buyer tax credit to date, and the need for qualified buyers to continue to absorb inventory that will include additional foreclosures over the coming year, we are hopeful about the impact of the expanded tax credit because it will stabilize home prices,” he said. “In fact, the credit is working better than first projected–it now looks like we’ll have 2.3 to 2.4 million first-time buyers this year.”

According to an NAR consumer study, first-time buyers accounted for a record 47% share of home sales over the past year, up from 41% in the 2008 survey. The share has risen steadily since a cyclical low of 36% in 2006. Existing-home sales are expected to total 5.01 million in 2009, a gain of 2% over last year, and then are forecasted to rise 13.6% to 5.69 million in 2010. “A steady draw down of inventory will help home values to turn positive in 2010,” said Yun, “but risks such as unemployment remain in the economy.”

New-home sales are projected at 397,000 this year, recovering to 549,000 in 2010. Housing starts, including multifamily units, should total 564,000 units this year but grow to 752,000 in 2010. According to Yun, the 30-year fixed-rate mortgage will probably average 5.3% in the fourth quarter, rising gradually to 5.8% by the end of next year. NAR’s housing affordability index will set a record in 2009, averaging 30 percentage points higher than 2008. Affordability will decline from record highs next year, but will remain at historically attractive levels for home buyers.

Yun expects growth in the US gross domestic product to be at a pace of 2.5% in the current quarter, with GDP up 2.8% in 2010. And the unemployment rate is close to peaking and is projected to ease to 9.5% by the end of next year, he said.

“The size of the US budget deficit is a concern going forward,” Yun said, adding that it carries the risk of higher inflation. “At this point, that risk appears to be restrained.” Inflation, as measured by the Consumer Price Index, is seen contracting 0.4% this year, then rising 1.6% in 2010.

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