Realtor Gary Watts is sticking to his upbeat forecast for 2007, saying that home prices will hold firm and may even appreciate in the fall.

But while Watts originally predicted a 7% increase in house prices and a 4% gain in condo prices, he didn't give a percentage range when he issued his Mid-Year Update at a recent gathering of the Orange County Association of Realtors.

Watts also believes that sales will improve in the next six months, equaling or surpassing last year's total sales. If sales don't pick up but continue at the current pace, Orange County will end the year just 10% below the 2006 sales total, he said.

Here's what he said:

"I am holding to my original forecast for this year. I knew the 1st and maybe the 2nd quarter would be rough ones. I think the Fed will cut the interest rates later this year, and home prices will begin to firm up and even appreciate in the fall, especially as we head to 2008 and the election year!"

Watts maintains that the subprime mortgage mess is not as devastating as depicted in the media, that foreclosures still represent a relatively small proprotion of the overall market, that our population still is growing and the economy is strong.

A sampling of his key points:

• While the delinquency rate on subprime loans is at 13.77%, the rate for all U.S. home loans is 4.84%, compared to a record low of 4%.

• In the first quarter of this year, only 0.008% of all mortgages entered the foreclosure process.

• Only 12.2% of defaulting homeowners in Orange County actually end up losing their homes to foreclosure. Only 38 percent experienced an actual loss at their foreclosure sales.

• Last month, only 209 bank-owned properties were listed in the local MLS, or 0.013% of our inventory -- "not enough to put pressure on the housing market."

Watts concludes:

"There is no doubt that this market has its challenges, but for those of us who have been in the business for many years, this market, although weak, is so much stronger than during previous market downturns."

For an Orange County Market Update click "My newsletter" to read the latest.  Please contact me for more info about rents, purchasing you own personal residence or investment properties.  888-877-6062.