L.A.-area housing prices will drop this year and the local and national economies will slow, according to an economic forecast released Wednesday from Chapman University's Anderson Center for Economic Research.

The Chapman forecast for L.A. County predicts the housing market will turn negative by mid-year, with home prices dropping an average of 5 percent by year's end.

The forecast cites a continued rise in mortgage rates as the primary culprit, saying higher rates will hit people with adjustable rate mortgages hard and make it more difficult to sell homes to first-time homebuyers.

"First time homebuyers will be in trouble and that's what drives the overall market," Anderson Center director Esmael Adibi said at the Business Journal-sponsored breakfast accompanying the forecast release.

Chapman's housing forecast is more pessimistic than the University of California Los Angeles Anderson School of Management forecast released in December, which said housing price appreciation will slow in 2006 but still remain positive.

Nationally, the Chapman forecast predicts a slowing of economic growth and job creation this year as rising interest rates kick in and consumer spending slows. National gross domestic product, which grew at 4.2 percent in 2004 and at an estimated 3.5 percent in 2005, will only grow 3.1 percent in 2006, the forecast said.

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