Looking at the OFHEO Home Price Index and forecasting into the future, we expect to see existing home prices decline nationally for another four quarters. Using our own proprietary forecasting model, it looks as though the index may fall 7% from the ending value at the end of the third quarter of 2007 to the same quarter of 2008. But from that point we expect prices to once again move forward on a typical, slightly higher than inflation pace.

In addition to our belief that the OFHEO index declines will cease within the next 12 months, using the OFHEO index as a guide, we don’t see much of a chance for the declines to be significantly worse. In fact there is less than a 10% chance according to our model that the OFHEO index will see a double-digit decline.

So we can be thankful that 2007 is almost over, the tunnel—at least as far as home prices measured by the OFHEO index go—is about 12 months long, and that dim light at the end of the tunnel is not an oncoming train.

And if you happen to reside or invest in markets where we don’t see economic difficulties or the big demand and supply driven issues, you can especially be thankful. When the bad markets start to stabilize, the psychology nationally will improve and that should remove the wet blanket that ruined your 2007.