The U.S. Congressional Budget Office said Wednesday that it expects stabilizing home prices and a modest turnaround in homebuilding during the second half of 2007.

Congress' budget analysis unit said its short-term forecast assumes real residential investment will continue to fall during the first half of this year and that, on average, prices for houses will register a small decline during 2007.

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Cautioning that the housing outlook remains uncertain, the CBO said, "Prices are expected to stabilize later this year. The smaller inventory will encourage a mild rebound in homebuilding during the second half of this year,"

The U.S. housing market boomed from early 2003 to the end of 2005, adding to overall economic growth. "The housing boom directly affected other industries, such as appliance manufacturing, and indirectly strengthened consumer spending by boosting household wealth," CBO said.

Last year, a slowdown in home price inflation and a sharp drop-off in construction activity hurt growth, it said.

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CBO said it assumes "the national average price of housing will decline slightly this year but edge up next year."

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