NEW YORK (CNNMoney.com) -- Home values and housing sales will take an even bigger hit than previously forecast and will not recover to their earlier levels throughout all of 2008, at least, according to the latest economic outlook from the National Association of Realtors released Tuesday.
While the trade group sees gains in prices in 2008 from the current weak levels, it projects that the median existing home price will be $224,600 in the fourth quarter of next year. That would still put the price slightly below the record price reading of $225,000 in the third quarter of last year.
The trade group now says it expects a 3.7 percent decline in existing home prices in the third quarter of 2007 compared to a year earlier, which is worse than the previous forecast of a 2.2 percent decline. And the fourth quarter should see prices down 1.3 percent from a year ago, rather than the 1 percent drop that was previously forecast.
The weaker than expected outlook for the second half of 2007 should leave prices down 1.7 percent for the entire year, compared to its previous forecast of a 1.2 percent decline. That would mark the first full year decline in existing home prices since the group started keeping track of median price data.
The group has continually been revising price estimates lower as problems in the mortgage markets made it more difficult for potential buyers to find financing and helped feed the glut of homes for sale on the market. As recently as the March economic forecast, it had still been looking for an annual gain of 1.2 percent in existing home prices.
"There's been an unusual hit to home sales, starting in March when subprime (mortgage) problems emerged, and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines," said a statement from Lawrence Yun, the group's senior economist.
The group also sees continued weakness in new home prices, with values down 2.2 percent this year, and down 3 percent in the first quarter of 2008 compared to the first quarter of this year.
The median price of a new home is forecast to rebound in the second quarter of next year. However, that reading is expected only to reach $247,800 by the fourth quarter of next year, which would be down 3.1 percent from the peak of $255,900 seen in the first quarter of this year.
The weakness in prices is being fed by the slowdown in sales, which has resulted in a glut of homes on the market. And that slump in sales is now expected to be worse than the group's earlier estimates.
The group is now forecasting an 8.6 percentage drop in the pace of existing home sales this year, which is not only worse than its previous estimate of a 6.8 percent decline but also would top the 8.5 percent drop seen in 2006. While the group believes existing home sales should rebound 5.8 percent in 2008 that would still leave the volume of sales more than 11 percent below the record sales of 7.1 million seen in 2005.
New home sales volume is expected to drop even more sharply, posting a 23.8 percent drop this year, and another 7.4 percent drop in 2008. Housing starts are expected to post similar declines each year. 
