It may not be the news homeowners, contractors and real estate agents want to hear, but economists continue to predict further declines in home prices will prevail throughout 2007.

In November, Washington County reported the first decline in average home prices in Northwest Arkansas after 11 months of price increases despite oversupply and sagging sales.

“The market must continue to work through the oversupply that has been building for the past two years. We simply can’t absorb all the product available and soon to come through the pipeline overnight,” said Kathy Deck, director for the Center for Business and Economic Development at the University of Arkansas.

The inventory surplus reported in the last Skyline Report rose by 22 percent from the year before to almost 3,000 homes completed and unoccupied.

Deck predicts the oversupply will put additional downward pressure on prices with single digit declines lasting through 2007 and into 2008.

Moody’s Economy.com, a private research firm, projected that the median home sales price will drop this year by 3.6 percent — the first decline for an entire year in U.S. home prices since the Great Depression.

In Northwest Arkansas, Moody’s analyst Acharya Yubraj predicts a price decline of roughly 2 percent on fewer sales in 2007 as compared to 2006 based on data collected by the National Association of Realtors and the Office of Federal Housing Enterprise Oversight.

David Wyss, chief economist with Standard & Poor’s, forecasts a 3 percent decline in the nation’s housing prices from the fourth quarter of 2006 to the same period in 2007.

“Nationally, the big bang in sales is over and don’t expect it to recover until late this year or early next year and prices are not done falling — they will contract more,” Wyss said.

He explains there are three basic phases in a housing downturn and each local and regional market is experiencing various stages of the three-year downturn.

Phase I is “Denial.” During this first year prices keep going up despite falling sales, Wyss said.

“People just refuse to sell at lower prices and that usually lasts about a year,” he added.

Phase II is “Anger.” In this phase, oversupplies build, people can’t sell and prices come down while building slows. This can cause further economic fallout when people stop or slow the building rate, Wyss said.

Phase III is “Acceptance.” Wyss said this occurs when the unsold inventory is cleared out.

On a positive note, another factor affecting how fast a local market recovers includes employment.

“When jobs are being created, the unsold inventory will be absorbed faster,” Wyss said.

Larry Kelly, a vice president for the Arkansas Realtor’s Association, sees the Northwest Arkansas area recovering by the spring.

“I think we are addressing the oversupply by less building and while prices may flatten out in the coming months, I think in the spring we will see a different market,” Kelly said.

For those who are in still in the market to purchase a home, Wyss said don’t wait too long.

While prices are likely to slide a little lower, he predicts higher long-term interest rates will be a reality toward the end of the year.