Housing slump gets longer, and longer ...

NEW YORK (CNNMoney.com) -- The slump in home sales and prices will be deeper and last longer than previously expected, according to the latest forecast Wednesday by the National Association of Realtors.

The trade group is now looking for flat prices for existing homes in the first quarter of 2008 compared to the first quarter of 2007, and a more year-over-year declines for new home.

The forecast for the pace and price of home sales was cut further by the National Association of Realtors on Wednesday.

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The group's previous monthly forecast had projected that both new and existing home prices would start to rebound to show a year-over-year rise in the first quarter of 2008.

Both new and existing home prices are now expected to show a less than 1 percent gain in the second quarter of next year, according to the latest forecasts. Those increases are less than previously forecast.

"Buyers now have an overwhelming advantage given the wide selection of homes available in many markets," said Lawrence Yun, NAR senior economist, in the group's forecast statement.

The group's forecast also shows some additional weakness in projections for the rest of 2007 as well.

The group now sees second-quarter existing home sales falling below the 6 million annual sales pace to a 5.96 million rate. That is still only a forecast, as final sales and price figures from the just completed period are not yet available.

If it is correct, it would be the first time in four years that quarterly sales were below the 6 million home annual sales pace.

A month ago, the group was forecasting the pace of sales would end the second quarter at a 6.03 million annual rate, and stay above that 6 million threshold through the rest of this year and into 2008.

But the group now expects sales to stay just below the 6 million pace in the third quarter as well, although it sees a slight pickup from its current forecast for the second quarter sales pace.

The group also now projects that the median existing home price for all of 2007 will be down 1.4 percent, which is slightly worse than its previous forecast of a 1.3 percent drop.

The group has never seen a full-year decline in existing home prices in the nearly 40 years it has compiled national sales statistics. As recently as March, the group was still forecasting a 1.2 percent rise in the median existing home price for this year.

It also is looking for a 2.6 percent drop in new home prices for all of 2007. That is also worse than the previous estimate of a 2.3 percent drop in prices.

And while the forecast for new home prices is to increase for all of 2008, the new estimate of a 2.2 percent increase from 2007 levels is less than the previous forecast of a 2.6 percent jump in prices. The latest forecast is for a 1.8 percent rise in existing home prices in 2008, slightly better than its previous estimate of a 1.7 percent rise.

"Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008," Yun said in the group's forecast. "Local conditions vary considerably, but with historically low mortgage interest rates this summer and sustained job gains, it could be a good time for first-time buyers with a long-term view to test the housing waters."

But Paul Kasriel, chief economist with Northern Trust in Chicago, questioned the Realtors' assessment that this is a good time to enter the market, saying weak sales and prices suggest that potential buyers are smart to be sitting on the sidelines right now.

"No one is buying into their Kool-Aid; that's why prices are falling," he said. "It could be that they're going to fall a lot more. The Realtors tend to be overly optimistic. Eventually they'll be right about prices turning around. I don't know when prices are going to stabilize but I suspect they'll fall more than they think this year. It may be a much better time to buy six months or a year from now."

The group forecasts that the average 30-year fixed rate mortgage will be 6.7 percent in the third and fourth quarters of this year, after averaging 6.3 percent in the second quarter. That's slightly above its previous forecast of mortgage rates of 6.6 percent through the end of this year.

Mortgage finance firm Freddie Mac's survey found that the average 30-year has retreated in each of the last four weeks to 6.63 percent in the most recent reading, after hitting an 11-month high in the firm's June 14 estimate.

Weak new home sales and prices have hurt results of the nation's leading builders. In the last few weeks major home builders Lennar (Charts, Fortune 500), KB Home (Charts, Fortune 500), D.R. Horton (Charts, Fortune 500) and Ryland Group (Charts, Fortune 500) all either reported or warned of unexpected losses.