Is 2010 the year to buy a house? It certainly looks that way: After a steep run-up in prices during the first half of the decade, home values have plummeted back to 2003 levels. Fixed mortgage rates are sitting near record lows. And the foreclosure epidemic – while painful for many home owners – has created some wonderful opportunities for bargain hunters. If that is not enough, Uncle Sam is handing out thousands of dollars in tax credits to nearly all first-time buyers and the bulk of existing home owners who close a purchase by June 2010.
But while the 2010 outlook appears inviting, there is one key catch – you need to have a stable job. The economy is showing signs of life, but the unemployment rate is already at 10 percent and expected to go higher. And while those mortgage rates are attractive, buying a home makes sense only if you can bank on your income stream. Before you consider purchasing a home, take a hard look at your job, your company, and your industry.
With that said, here are 7 things to know about real estate in 2010:
1. Prices to bottom: After more than three years of falling, real estate values have shown signs of stabilization in recent months. This improvement will give way to a bottom in home prices, finally, in 2010, but not before some possible declines. Some real estate forecasters are projecting home prices to hit bottom in the third quarter of 2010.
2. Mortgage delinquencies up:Amid falling home prices and poor labor market, roughly 1 in every 7 mortgages was either past due or in foreclosure by the end of the third quarter in 2009 – the highest delinquency rate in the 37-year history of the Mortgage Bankers Association’s National Delinquency Survey. Two factors are expected to drive delinquencies even higher next year. First, nearly 1 in 4 homeowners currently owes more on their mortgage than the property is worth which increases their odds of default. And secondly, the national unemployment rate – which already stands at 10 percent – will peak at about 10.5 percent in the first quarter of 2010. Additional job losses mean more borrowers wont be able to pay their mortgage bills.
3. Mortgage rates to rise: Anyone who purchased a home in 2009 was presented with some extremely attractive mortgage rates. Rates on 30-year, fixed mortgages fell to an average of 4.88 percent in November 2009, down sharply from 6.09 a year earlier. A key factor behind the plunge was a Federal Reserve program, first announced in November of 2008, which purchased debt and mortgage-backed securities from Fannie Mae and Freddie Mac. But the program was slated to expire at the end of the first quarter, and if private investors do not step up, fixed mortgage rates could jump (The Fed, of course, could always decide to extend the program). The unwinding of this Fed program, the improving economy, and mounting concern over government deficits could push rates on 30-year, fixed mortgages to roughly 5.5 percent by mid-2010 and close to 6 percent by the end of the year.
4. Buyer’s market remains: With prices still falling, mortgage rates remaining historically attractive, and additional homes hitting the market in the form of foreclosures, the dynamics of the real estate market will continue to favor buyers over sellers in 2010. That means those looking to buy a homje next year should not feel pressured to act impulsively. Buyers do not need to have a sense of urgency, but they do need to understand that as time progresses the balance of power, as we get into 2010, is going to slowly but surely shift back to the sellers. It is not going to be a strong seller’s market, but it will be more evenly distributed as the year goes on.
5. Modification plan could be modified: While the Obama administration has put nearly 700,000 borrowers into temporarily restructured mortgages, it had found permanent fixes for just 31,382 struggling homeowners through November 2009. What’s more, critics have identified two key shortcomings of the government’s $75 billion anti-foreclosure plan. First, the program is not much help for borrowers struggling to stay in their homes as a result of a job loss. At the same time, the plan does not sufficiently address the issue of negative equity – owing more on your home loan than the property is worth – which also works to increase foreclosures. The government may move next year to overhaul the modification program in two ways: improving troubled borrowers’ negative equity positions and helping to turn troubled homeowners into renters.
6. Tax credit available through June: On top of lower prices and cheap mortgage rates, Uncle Sam is offering an additional incentive to get buyers into the market next year. In early November 2009, President Obama signed a bill extending and expanding a popular tax perk for home buyers. The legislation gives qualified first-time home buyers a tax credit of up to $8,000 if they close the purchase of a primary residence by the end of June 2010. Meanwhile, qualified current home owners are eligible for a credit of up to $6,500 when they buy their next principal residence.
7. Markets will vary a great deal by region: The performance of the national housing market is much less important that the dynamics of your local market, and sales and pricing trends will vary a great deal from one area to the next in 2010. That means anyone interested in buying real estate next year should not just read the national headlines. Instead, consult a real estate professional with experience in that area. AWith their help you can obtain local pricing and inventory trends.