2010 Home Price Predictions

Although it appeared that there were signs of stabilization in housing prices and demand through October 2009 and 6 months prior, the National Association of Real Estate Agents (NAR) recent reports show that pending sales of existing homes in the U.S. fell 16% in November despite the government's efforts of continuing to jump starting the housing industry by extending the $8,000 federal tax first time home buyer credit and the additional credit of $6,500 to non-first time home buyers.

More Foreclosures in 2010

According to the National Association of Realtors, 3,000,000 homeowners received foreclosure notices in 2009 and the same is expected for 2010. Foreclosure notices include notices of default, notice of foreclosure auction sales, and bank repossession notices. The expected new wave of 2010 foreclosures are a result of the government's failed mortgage modification program and from Alt-A mortgages and ARM's resetting.  To make matters worse, unemployment is projected to hit 10.5% in 2010, adding to the number of borrowers who will default on their mortgages. According to First American Corelogic, a real estate and mortgage data company reports, “…at least $64 billion in option ARMs will reset in 2010 and another $68 billion in 2011.  As a result, economists expect that home prices could dip another 5%-10% before the real estate market stabilizes.

Interest Rates Rising

Another contributing factor that could set home sales and prices falling is the fact that interest rates are on the rise. The Federal Reserve's program of purchasing up to $1.25 trillion in mortgage-backed securities backed by Fannie and Freddie expires on March 31, 2010. We are seeing rates already starting to climb slightly.
However, rates are still at record lows so it is still a good time for buyers to purchase a home or refinance their existing mortgages.

Prices Bottoming Out

Industry analysts agree that real estate housing prices will bottom out soon. Markets such as NevadaFlorida, ArizonaCalifornia have gone down as much as 60% in value since the housing bubble burst in 2007. It is expected by many real estate experts that the housing market will not truly recover until 2013.  

So Why Are U.S. Banks Showing Profits?

Even with record number of foreclosure and high unemployment rates affecting the economy, U.S. banks have been showing profits and many have been able to pay back their TARP money. One of the reasons is Americans are saving more money and spending less so banks can use this money to loan out to other borrowers at rates of 5%-14%, while paying as little as 1%-2% interest to savings account holders. Another reason is that so many borrowers have taken advantage of refinancing.  Thirdly, when the bank makes a new home mortgage, they are sold to Fannie Mae or Freddie Mac, putting the money back into the bank's pockets.
Of course we want to keep our financial systems strong so that credit is available to businesses and consumers. But we need a balance to help consumes out as well. 2010 is expected to show mixed signals so be prepared for the roller coaster ride.