Tighter credit for home mortgages will measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, according to the latest forecast by the National Association of Realtors(R).

Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. "There's been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.

"However, the jumbo loan market is now beginning to settle, and FHA- insured loans are helping to fill the subprime vacuum. The volume of existing- home sales this year will be better than 2002, which was the second year of the housing boom." Existing-home sales are projected at 5.92 million this year and then to rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006.

"A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory," Yun said. Housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006. "The mortgage markets will calm further in the months ahead, but it's important to underscore the fact that conventional loans - the vast majority of available financing - are available to creditworthy borrowers," Yun said. "Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment."

Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100. The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008. "We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans," Yun said. "FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future."

Growth in the U.S. gross domestic product (GDP) is forecast at 2.0 percent in 2007, below the 2.9 percent growth rate last year; GDP will probably grow 2.7 percent in 2008. The unemployment rate should average 4.6 percent for 2007, unchanged from last year. Inflation, as measured by the Consumer Price Index, is estimated to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation- adjusted disposable personal income is likely to increase 3.6 percent this year, up from 3.1 percent in 2006.