Where is the housing market headed in 2010?

Dennis Norman

Will the Bears or Bulls prevail in 2010?

As the real estate market is beginning to show signs that we are “bottoming out” and that the down-slide is leveling off the discussion has become what the rest of 2010 holds in store. Some say we are entering a Bull market and expect prices to increase from the depressed levels they have reached citing the greatly increased affordability of homes and record low interest rates; others say we are entering a Bear market and that over-supply in the market, largely a result of record foreclosures, will continue to beat prices down.

Here’s what the “Bulls” say:

  • Home prices are at levels significantly lower than their peak levels during the “boom” and affordability is at the lowest level in years.
  • Interest rates are at record lows and, while obtaining financing is currently somewhat of a challenge, lenders are expected to ease up on their lending policies and make financing more readily available. The government is already pushing a rule change for Fannie Mae and Freddie Mac to have them loosen their underwriting guidelines.
  • Richard DeKaser, Contributing Economist to The Kiplinger Letter, in a recent article cited three reasons why he felt supported being optimistic, or “Bullish”, on the housing market:
    • Affordability – it now takes 18 percent of the typical household income to afford a home, compared with a long-term average of 26 percent.
    • Consumer confidence – says that consumers are beginning to take on expensive, long-term commitments.
    • Credit conditions will ease up – The Fed Reserve’s April survey of senior loan officers show banks were reporting “essentially no change” in their underwriting standards on mortgages over the past three months. (so I guess since it didn’t get worse that is good)

Here’s what the “Bears” say:

  • The recent upward spike in home sales is, for the most part, nothing more than the temporary and artificial market that was created by the government’s home-buyer tax credit program.
  • While recent reports have shown that the rate of increase of mortgage delinquencies and foreclosures has decreased over the past couple of months, we are still at record levels of both which will continue to flood the market with foreclosures and REO’s.
  • Even during the recent uptick in home sales brought on by the expiring tax credits, home prices still dropped in many markets. This shows there is still some uncertainty about home values in the market place, which, coupled with the downward price pressure caused by foreclosures, will continue to put heavy negative pressure on home prices.
  • The rate of unemployment is still high and our economy still has many challenges: off the charts spending and debt by the Federal govt, States and Cities struggling to balance budgets not to mention the international issues brought on by lagging economies in Europe and China, Greece’s financial issues and so on.

So what it is, a Bull or a Bear coming our way?

Remember, I’m in the real estate business, I WANT it to be a bull. But….here’s what I see coming…


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