The National Association of Realtors in Washington, D.C. Wednesday released a downwardly revised forecast for home sales in 2007 and predicted the first annual decline in the median price for existing homes in more than 40 years.

NAR is now forecasting that existing-home sales will total 6.34 million in 2007 and 6.52 million next year, a 2.2% drop this year from 6.48 million in 2006. The NAR forecast for new-home sales is 904,000 this year and 935,000 in 2008, representing a drop in 2007 of 13.9% below the 1.05 million last year. NAR estimates an 18.3% decrease in housing starts to 1.47 million in 2007 and a slight bump up to 1.55 million next year, both down from 1.80 million units in 2006.

On pricing, NAR predicts the national median price for existing single-family homes will fall 0.7% to $220,300 and that the median price for new homes will rise 0.4% to $246,200. It is projecting "modest growth" in 2008, with existing-home prices up 1.6% and new-home prices up 2.0%.

"As home sales moderate, overall home prices will be essentially flat this year," said David Lereah, chief economist for NAR. "The good news is that inventories remain well below the levels experienced during the last housing downturn in the early 1990s, and supplies are close to balance in many areas."

He also explained why, in NAR's view, prices are falling for the first time since the early 1960s. "When you look at housing activity in 2007, especially during the first half of this year, the percentage change in median home price is being distorted as the composition of sales shifts geographically from high-cost markets to moderately priced areas, in contrast with the sales distribution a year earlier," Lereah said. "Within given markets, most areas can expect minor price gains."

Regarding the overall economy, NAR sees the unemployment rate holding steady at 4.6% in 2007, with inflation, as measured by the Consumer Price Index, declining to 2.1% this year, compared with 3.2% in 2006. NAR is forecasting growth in the U.S. gross domestic product of 2.3% in 2007, down from 3.3% last year. Its estimate for inflation-adjusted disposable personal income is a rise of 3.1% this year, up from a gain of 2.6% in 2006.