Tighter credit for home mortgages will soften existing-home sales for the rest of the year and postpone any hope for a housing recovery this year, according to today's housing and economic forecast by the National Association of Realtors (NAR).

However, the trade group said the jumbo loan market is beginning to settle and FHA-insured loans are helping to offset ongoing problems with subprime loans, two trends that will slowly bring buyers back.

According to the NAR, existing-home sales are projected to be down 8.6% this year 5.92 million units compared to 6.48 million in 2006. Then it expects a jump to 6.27 million in 2008.

On the new-home front, NAR estimates sales at 801,000 in 2007 and 741,000 next year, roughly 29 percent off the pace of 1.05 million in 2006.

"A sharp production pullback by home builders deep into 2008 is a healthy trend that will help trim down housing inventory," says Paul Bishop, an economist in the research division at NAR.

"The sooner builders can work off the inventory the better," says Bishop, adding that working off the inventory will allow builders to be on a more solid footing beyond 2008.

Housing starts, including multifamily units, are expected to total 1.37 million units this year and 1.26 million in 2008. The 2008 estimate is off 30 percent compared with 1.80 million in 2006, the last year of the boom.

NAR expects the Federal Reserve to cut interest rates at least two times before year's end. The trade group said the expected cuts will lower interest rates for prime borrowers and FHA-insured loans, which could help spur home sales in the months ahead.