UBS sees home prices down 10% in 2007

Marketwatch reports:

Home prices will fall 10% on average in 2007 and it will likely take three years to clear out the huge inventory of empty unsold homes currently in the market, according to a UBS report released Monday.
A surge in new construction and a pullback in demand led to the inventory glut that's currently plaguing the sector.
UBS analyst Margaret Whelan estimated that the industry overbuilt to the tune of 900,000 homes between 2003 and the first half of 2006. "Most of those homes are vacant," which means they'll rely more heavily on price discounting to get sold than if they were homes with people living in them, she said, during a conference call Monday.
"It will take about three years to shift all of that excess inventory," said Whelan. As a result, she expects housing starts to fall 15% in 2007 from 2006 levels.
Whelan said there is currently a five-month supply of existing homes up for sale and a six-month supply of new homes on the market, based on current sales trends.
In past cycles, when inventory levels have reached four or five-months' supply, "you've had a dropoff in real house prices," said UBS chief economist Maury Harris.
Harris is predicting median home prices will fall 10% over the next year, and housing starts will fall by 180,000 units to 1.55 million in 2007 from 2006.

This assumes no recession.Some real estate markets will face increasing sales by baby boomers by 2008.