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Real Estate 2010: New Year, Less Fear

“Fear always springs from ignorance.”

-Ralph Waldo Emerson

Unlike last year, we are better prepared for the challenges ahead of us.  Knowing how the market is moving will help us in the decisions we make.  Here are a few things to consider when making your move into the New Year:

Percent growth

Mortgaging Interest Rates – Rates remained at historic levels this past year because the federal government, realizing they were an important component to any economic recovery, took steps to guarantee they would stay low. The Fed has already announced that the measures they have been taking will come to an end as of March 30, 2010. After that, the private sector will be on their own to set what they believe to be a fair and reasonable rate based on current economic conditions.

Where were rates before the Fed got involved? They were hovering around 7%. We believe there will be a slow climb back to the 6 ½ – 7% range as the year unfolds. We believed this uptick would start in late March. However, after seeing rates rise almost ½ point in the last month of 2009, this may occur sooner.

House Sales – We believe that the first half of 2010 will continue to see large numbers of buyers committing to purchasing a home. With rates low and the home buyers tax credit still in effect, it will be hard for some not to jump into the market.

However, as rates begin to rise and the tax credit disappears, we believe buyer demand will weaken.  The second half of the year will not be anywhere near as strong as the first half.

The one price tier that we believe will pick up momentum late in spring and carry through the year is the upper-end range. As more low and mid-tiered priced homes are sold in the first 120 days, there will be a natural inclination for a percentage of those sellers to take advantage of prices in the high end that haven’t been seen in the last decade and may never be seen again.

Short SaleForeclosures and Short Sales – Distressed properties will be part of the real estate landscape for the next several years. We think 2010 will be especially challenging when it comes to this point. With unemployment still with us and more and more houses ‘underwater’, we see an increase in distressed sales. And we surmise they will be at every price point including the $1 million & above.

However, we see that the majority will be short sales not foreclosure sales. With banks not relishing the liability that comes with millions of vacant houses and with a new simpler short sale process to be launched on April 5th of next year, we believe that a large portion of the sales in the last three quarters of 2010 will be of the short sale variety.

Home Prices – This is the toughest to predict. Unlike many, we do not believe we are finished with the downward pressure on prices. In most price points, inventory is still strong and with a ‘shadow inventory’ estimated at over 1.5 million properties (at all different price points) about to hit the market, we can still see prices having another 10-15% to fall.

Though demand will be strong for the first 120 days of 2010, it could be dwarfed by the surge of properties coming to the market. And a high percentage of that inventory will be at discounted prices (distressed properties).

For Sale

Conclusion – There will be a large number of homes selling in 2010 with demand strongest in the first half of the year before rates rise and incentives disappear. Even though demand will be high, prices will continue to soften because of the large supply of distressed sales that will come to market.

If you are looking to buy, purchase before rates rise as the cost of the home will be higher if rates go up 1% even if prices drop another 10%.

If you are looking to sell, the buying season will begin much earlier this year and probably will end earlier than usual. Put your house on the market now.

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