Amidst Uncertainty, Some Expect Home Prices to Fall.

New York -- Fannie Mae's CEO, Daniel Mudd, knows that housing has been on a roll in recent years, but he thinks the market may be sliding backward this year.

Speaking at an investors conference sponsored by Citigroup, Mr. Mudd said that Fannie Mae's economists expect home prices to decline nationally by 1% to 2% this year. That would be the first time since World War II that the average housing price declined nationally.

"Our economists see more tough sledding this year for the housing and mortgage industries," Mr. Mudd said.

Fannie Mae expects to see home sales fall by 8% in 2007. The company also expects mortgage origination volume to decline by 7%.

"These figures are national averages, but I think the pain will not be felt equally or in any kind of national way," Mr. Mudd said, adding that some regions may continue to see price gains while others, such as the Gulf Coast and the Upper Midwest, will suffer from weak economies and credit losses.

He said "multifeatured," exotic and nontraditional loan products will likely experience the most default pressure, especially in areas that have seen substantial home price increases.

The downturn is not all that surprising, he suggested. The housing market has been extremely strong through two economic cycles without letting up, he said. Strong investor demand and the lowest mortgage rates in two generations helped fuel the housing boom. But those factors may have driven prices to unsustainable levels in some areas.