The National Association of Realtors said sales of existing homes were likely to drop 7.6% this year to 6.54 million. A month ago, the group thought existing homes sales would fall 6.5% to 6.61 million.

The association, which said housing prices were likely to dip temporarily below year-ago levels, also revised lower its forecasts for new-home sales and housing starts.

It said new-home sales looked set to drop a steep 16.1% to 1.08 million units, compared to a previous forecast of a fall to just 1.12 million.

NAR said builders were now likely to break ground on just 1.87 million units this year — 9.6% lower than last year's level and a bit below its prior 1.88 million forecast.

"This year sales are slowing, homes are plentiful and sellers are negotiating," NAR chief economist David Lereah said in a statement. "Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build-up in housing inventory."

"This is a normal pattern during a market correction, but home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms," he added.

NAR said the median price for existing homes — the price at which half of homes sell for more and the other half for less — should grow 2.8% this year to $225,900. But it said the median price of new homes would likely inch up just 0.2% to $241,400.

"The shift we've seen lately results from psychological factors with buyers on the sidelines trying to time the market," NAR President Thomas Stevens said in explaining the sharp shift in the group's forecast.

The forecast as several big home builders lower their profit forecasts amid the slumping housing market.

• Beazer Homes USA (BZH) cut its full-year earnings outlook Thursday.

The home builder said it now expects its fiscal 2006 earnings per share to be in a range of $8 to $8.50, compared to its previous outlook of $9.25 to $9.75.

Beazer Homes said net sales through the two months ended Aug. 31 were 49% below prior-year levels and cancellations of existing contracts rose to 50% from 26% in the same period in the previous year.

• KB Home (KBH) slashed its 2006 profit forecast late Wednesday.

The company now sees full-year earnings of $8 to $8.50 a share, down from a previous forecast of $10 a share. Early in the year, KB Home issued a projection of $11.25.

The company said preliminary net orders for the quarter were down 43% from the prior year to 5,989, as cancellation rates have shot higher. Gross unit orders and traffic to new home communities each slid 11% in the third period.

In response to the housing market slowdown, the company has set out to cut costs, including curtailing land acquisitions and has also sold off some of its non-critical land holdings in a bid to focus more on its core homebuilding business.

• Also Wednesday, Hovnanian (HOV), one of the largest luxury home builders, reported fiscal third-quarter net income that fell about 36%, while orders declined 26%.

Hovnanian said profit, orders and margins all declined in its most recent quarter compared with a year earlier. But the results beat the average of analysts' estimates and were at the midpoint of the company's previously lowered outlook.

Hovnanian maintained its lowered forecast for the fiscal year.

Contributing: The Associated Press