Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, then rise later in the year and continue to improve in 2009, according to the latest forecast by the National Association of Realtors(R).

"Our consumer survey shows buyers today are in it for the long-haul, planning to stay in their home for a median of 10 years. This is a wise approach to housing because the data shows the longer you own, the better your investment," Yun said.

New-home sales are projected at 773,000 for 2007, and declining to 669,000 this year before rising to 730,000 in 2009, but well below the 1.05 million 2006. With an appropriate slowdown in production, housing starts, including multifamily units, are forecast at 1.36 million for 2007 and 1.09 million this year before edging up to 1.10 million in 2009; starts totaled 1.80 million in 2006. The median new-home price should drop 2.1 percent to $241,400 for 2007, and then rise 0.4 percent to $242,200 this year and gain another 5.9 percent in 2009.

"Some policy changes, such as raising the loan limit on conventional mortgages, would provide a significant boost to home sales, increase liquidity, strengthen home prices and lessen foreclosures, but it is unclear as to if and when the measure will be implemented," Yun said. NAR strongly supports raising the Government-Sponsored Enterprise loan limit to at least $625,000 from the current $417,000 so that more consumers will have access to lower interest rates on safe conforming mortgages. "NAR estimates that raising the GSE loan limit will result in interest rates savings for an additional 330,000 homeowners," he said.

NAR also encourages the Fed to make a single lump-sum cut in the Fed funds rate to 3.5 percent at the January Federal Open Market Committee meeting, rather than a series of modest cuts throughout the year. "Consumers are also looking to market-time interest rates, and the expectations of further rate cuts are pushing some home buyers to delay. Monetary policy will be much more effective with a one-time large cut, rather than a series of small cuts," Yun added.

The 30-year fixed-rate mortgage is expected to rise slowly to the 6.3 percent range by the end of this year, but an additional cut in the Fed funds rate would lower short-term interest rates. Growth in the U.S. gross domestic product (GDP) is seen at 2.1 percent in 2007, below the 2.9 percent growth rate in 2006; GDP growth will probably be 2.0 percent this year.

After averaging 4.6 percent for both 2006 and 2007, the unemployment rate is estimated to rise to 5.3 percent in the second half of 2008. Inflation, as measured by the Consumer Price Index, is projected at 2.9 percent for 2007 and 3.1 percent this year; it was 3.2 percent in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.1 percent for 2007, the same as in 2006, and then grow 1.6 percent this year.