The reason: too much supply and not enough demand, the association said. The group suggested any correction would be short-lived given the number of people moving to Nevada from California and elsewhere, unprecedented investment by the gaming industry and a continually diversifying economy. That will create strong demand for housing between 2008 and 2012, the association said.

If true, that's good news for prospective buyers in 2007 but a sobering message for hopes the housing market would rebound in 2007 in terms of appreciation and number of sales.

The prediction, which is part of a State of the Industry Report released last week by the organization and prepared by Las Vegas consulting firm, Applied Analysis, suggests new-home prices will fall 10.4 percent and the price of existing homes will fall 7.3 percent. Pockets of greater instability, however, are expected to emerge.

The association blames the housing boom from 2003 to 2005 for leading to the imbalance by raising the cost of housing to the point where a smaller share of the population has the ability to purchase a new or existing home. Today, resale inventories are coming off all-time highs and builder incentives have become commonplace, the report said.

Those optimistic about the housing market point to the state's population growth, job growth, business investment and rising personal incomes. Those will moderate the length and depth of any downturn, but the economy's ability to buoy the housing market is questionable, the report said.

"The state's growth-dependent economy may find that a softer housing market, unaffordable to many at prevailing wages in expanding industries, impedes its ability to grow," the report said.

The report mentioned a high volume of speculative sales and current divestment of those assets in leading to instability. In Clark County, more than 55 percent of the 22,800 homes on the resale market in late 2006 were vacant or tenant-occupied. Seeing those transactions make their way through the market should go a long way to restoring the balance between supply and demand, the report said.

"The opening of several major casino-hotel properties between 2008 and 2011 is anticipated to bolster the state's economy, creating demand for an additional 215,000-plus housing units during the ensuing five to seven years," the report said. "Northern Nevada will continue to benefit from greater economic diversity and high quality of life scores, adding both residents and demands. The x-factor remains pricing and the industry and the government that regulates it would be well-served to closely monitor market dynamics during the next 12 months."

Much like the factors that caused the expansion, there is no single cause attributable to the slowdown, the report said. Mortgage rates rose, softer market conditions reduced the number of speculative investors as well as second and resort home buyers. Home-buyer confidence is low and home prices and home sales are falling, the report said.

The association's prediction of a drop in existing home prices is in line with what others have suggested for the Las Vegas Valley. There are mixed opinions about prices in the new-home market that were adjusted downward in 2006 when builders offered incentives and cut prices. New home sales in January were down 23 percent from December and 26 percent from January 2006, but some analysts have suggested the market should recover by the end of 2007 when sales stabilize.

"We have anticipated drops in prices for some time because product is not moving," said Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association. "This is Economics 101."

The report cites analysts who said Las Vegas is 33 percent to 42 percent overvalued and a prediction by Moodys that prices would decline 13 percent in Las Vegas by the second quarter of 2009.

National analysts routinely rank Nevada high in terms of housing market risk but they don't consider the state's unique economic and demographic character, the report said.

Not everyone agrees with the findings.

Las Vegas housing analyst Steve Bottfeld suggests that after a flat first six months of the year, he expects new home prices in the valley to increase 7 percent to 10 percent and resale prices to increase 3 percent to 7 percent for the year. High-rise units will appreciate 8 percent to 10 percent, he said.

Housing analyst Dennis Smith has projected the new-home median price will increase 3 percent in 2007 and 6 percent in 2008. Smith predicts resale prices will increase 2 percent in 2007 and 4 percent in 2008.