2010 Real Estate Predictions

While 2009 was a difficult year, real estate survived—and the outlook is continuing to improve.    Here are my predictions for what’s ahead for real estate in 2010:

  •  A Severe Shortage of Newly Built Homes.  Builders Will Enter the Market With More Caution.

The number of newly constructed homes dropped drastically in 2009—to just under 400,000 units.  This is well below the 1,000,000 units needed to accommodate population increases and household formations.  New home builders will move toward building to suit and no longer sell on spec.

  • Market Time Will Decline Sharply.

A lack of new construction inventory, low interest rates, the return of consumer confidence, and tax credits will all lead to reduced market times.

  • Home Prices Stabilize.

Prices will fluctuate slightly, but the real estate market will stabilize for entry-level homes.  We will see appreciation in some areas where inventory is limited and demand is strong, but no double-digits.

  • Interest Rates Will Rise and Mortgage Refinancing Will Drop Significantly.

Interest rates are expected to increase in 2010 as a result of the government’s reduction in their purchase of mortgage-backed securities and the oversupply of debt.

  • Lenders Will Require Golden Credit From Borrowers.

Lenders will make loans with the best terms and rates only to borrowers whose FICA scores exceed 720.

  • Real Estate Sales Will Slump by Mid-Summer.

With the home buyer tax credit set to expire by the end of June and as interest rates rise, interest in buying a home will wane.

  • The Number of Short Sales Will Increase.

As more sellers realize the benefits of short sales vs. foreclosures and gain confidence when they see that lots of short sales are closing escrow, more sellers will opt to do a short sale.