Not so bullish

In Massachusetts and nationally, business leaders are anticipating next year will bring slower growth than 2006, with the sputtering local housing market a particular damper on the Bay State economy.

"We'll still be growing, but more slowly, and we won't pick up until housing picks up," said Larissa Duzhansky , regional economist at the Waltham economic forecasting firm, Global Insight.

Having posted its best performance in five years this past year, the Massachusetts economy heads into 2007 with momentum. But slumping sales, and declines in home prices, are expected to extend through at least 2008 before they rebound.

Besides chilling job growth in construction, banking, and home improvement, the soft real estate market also slows consumer spending as stagnant or falling home values mean less home equity available for consumers to tap. During the boom, rising home equity provided consumers a ready source of cash through refinancing and home equity lines of credit.

Thousands of homeowners even face mortgage foreclosures that could leave their bankers owning their homes, as they're caught in a squeeze between falling home prices and rising adjustable-rate mortgages. Jeremy Shapiro , president of ForeclosuresMass.com, a website for real-estate investors, said foreclosure proceedings are growing explosively. "If things do rebound slowly, for some folks that'll be a good thing," Shapiro said, but cautioned that foreclosures are "a slow ship to turn around."

Nationally, chief executives foresee a steady economy next year and are slightly less bullish than they were three months ago. The Business Roundtable , an association of chief executives from companies that employ 10 million people, said its CEO Economic Outlook index -- a measure of how business leaders think the economy will perform in coming month -- fell to 81.9 this month from 82.5 in the autumn and 101.4 a year earlier. On average, they expect 2.8 percent growth in the gross domestic product next year, down 0.2 percent from their autumn prediction and below the long-term average of 3.1 percent.

For the year ahead, one huge unfolding local story will be the rollout of a new health care law Governor Mitt Romney signed last April to extend health insurance coverage to 500,000 uninsured Bay Staters. Businesses that don't provide health insurance will have to pay a $295-per-employee annual fee, and by July 1, Massachusetts residents will be required to get insurance, which includes an array of new free and subsidized state policies.

Paul F. Levy , chief executive of Beth Israel Deaconess Medical Center in Boston, said that "the concept is a good one, but there are a lot of hard parts to organize. It will go in the right direction. It can't go smoothly, only because the whole thing is an experiment."

Here's a look at other headlines to expect in 2007:

With Boston office vacancy rates down to 8 percent from 14 percent three years ago and average rents up nearly a third to nearly $40 per square foot, Yanni Tsipis, vice president of the Boston real estate firm Meredith & Grew, predicts: "There will be ground broken for new office space sometime in 2007 or early 2008."

That could include construction starting at Russia Wharf, 888 Boylston in Boston Properties' Prudential Center, and one of developer Joseph F. Fallon's Fan Pier office buildings on the South Boston Waterfront.

With the Democrats' November success retaking the House of Representatives, veteran Bay State US representatives Barney Frank of Newton and Edward J. Markey of Malden will rise to chairmanships of committees overseeing, respectively, banking and telecommunications policy. Markey's ascent is great news for advocates of "network neutrality" such as Google.com, which want legislation to prevent Comcast Corp., Verizon Communications Inc., and other broadband providers from charging higher fees for delivering Internet data from sites they don't control.

While biotechnology and life sciences continue to draw funding, venture financiers are looking to rising niches with the promise of big returns. Among them -- alternative energy, advanced materials, military-related technology, and so-called Web 2.0 Internet companies.

"Enterprise software and communications equipment just aren't growing that fast," said Tom Crotty, general partner at Battery Ventures in Waltham, so "venture capitalists are moving to broaden and diversify their investment strategies."

Cardinal Sean P. O'Malley of the Roman Catholic Archdiocese of Boston will be facing the question of whether to sell its six-hospital Caritas Christi Health Care system or merge it into a deep-pocketed national Catholic health care chain. Meanwhile, Boston teaching hospital leaders are bracing for a big organizing drive by New York healthcare union 1199SEIU, which counts Senator Edward M. Kennedy as a powerful ally.

The world's largest biotechnology convention is to come to Boston in May, giving the city a chance to showcase an industry that politicians love to promote as an engine of growth and wealth. But it also means scores of states and countries wooing Massachusetts life-science firms with promises of low housing costs and government subsidies.

Watch for more out-of-town law firms to penetrate the Boston market, and expect mergers and acquisitions in the legal industry to continue, albeit at a slower pace. "The real action in the next couple years is going to be midsize firms or smaller firms merging with each other in Boston or regionally," to build up their expertise and ability to land more lucrative, complex work, said Jeff Coburn, a Boston law firm consultant.

Rage over soaring coastal home insurance rates is likely to drive calls for change from Beacon Hill. Less clear is whether Governor-elect Deval Patrick wants to take up automobile insurers' push for competitive rather than state-mandated rates at a time when auto rates are falling. Another consumer issue that could get some overdue attention this year: Reforming unenforced ticket scalping laws to create a more orderly and fair-priced resale market for sports and concert tickets.

Plans by the Boston Wireless Initiative to blanket the city with a wireless network will move forward this winter, with a pilot program in Grove Hall going online this coming year.

Peter J. Howe can be reached at howe@globe.com. Kimberly Blanton, Hiawatha Bray, Robert Gavin, Diedtra Henderson, Stephen Heuser, Carolyn Y. Johnson, Ross Kerber, Jeffrey Krasner, Bruce Mohl, Thomas C. Palmer Jr., Sacha Pfeiffer, Robert Weisman contributed to this story.