12 April 2007 By Jeff Swiatek, The Indianapolis Star Realtors see home prices falling in '07 Predicted drop would be first in U.S. in 38 years, but likely won't affect Indianapolis area, real estate experts say U.S. home prices in 2007 are headed for their first skid in at least 38 years, thanks to a cooling off of frantic Sunbelt home-buying and the collapse of the subprime mortgage industry, says the National Association of Realtors. Nationally, the median home price likely will fall 0.7 percent this year, to $220,300, the real estate trade group forecast Wednesday. The group didn't offer forecasts for specific regions or cities. But Indianapolis, which saw a slight decline last year, could see a slight jump in average prices this year, said G.B. Landrigan, president of Landrigan & Co. residential real estate. Last year, median sales price of Indianapolis-area homes fell 1.6 percent from 2005, to $122,900, according to the Metropolitan Indianapolis Board of Realtors. In the first two months of this year, the median sales price of homes sold in the 13-county Central Indiana area has stopped the slide from last year. However, the biggest months for real estate sales are in spring and summer. If the median home price falls nationally, it would be the first year-to-year drop since the group began tracking median prices in 1968 and possibly the first decline since the Great Depression, said National Association of Realtors spokesman Walter Molony. The predicted drop would end a long run of ever-rising median home prices, boosted by inflation, appreciation and the growing size of American homes that command higher price tags. Last year, the median price of a U.S. home rose 1 percent. Nationally, home purchases are being derailed as subprime lenders, who offer mortgages to people with poor credit scores, stop funding mortgages or go out of business, said Lawrence Yun, an economist with the Chicago-based Realtors group. At least 40 subprime lenders have halted operations, gone out of business or sought buyers in the past year amid rising borrower defaults. On April 2, Irvine, Calif.-based New Century Financial Corp., the largest independent subprime lender, filed for bankruptcy. "We've been getting reports from Realtors out in the field about home closings not going through at the last minute because of loan problems," Yun said. "That impacts all homeowners because it affects prices." A drop in sales of homes in Florida, California and Arizona also is expected to lower the median sales price this year, Molony said. With fewer sales being recorded in those high-cost markets, the national median price is more influenced by lower-cost markets, he said. The association also predicted that new-home sales probably will decline 16 percent to 904,000 this year, while existing-home sales are likely to fall 2 percent to 6.34 million from 6.48 million last year. Rising home mortgage rates play a big part in the predictions of a less-than-robust year for the housing market. Last week, lender Freddie Mac predicted that a 30-year fixed-rate mortgage, now carrying an interest rate of 6.17 percent, should rise slowly to 6.6 percent by the end of the year. Call Star reporter Jeff Swiatek at (317) 444-6483.