Home Price Outlook for 2010 and 2011

by Ryan Yates

Home sales have been improving to their highest level in more than two years. At the same time it seems that home prices are still falling. Will 2010 begin to level off the decline?
The chief economist of Moody’s Economy.com, Mark Zandi doesn’t think so.

According to Mark, home prices are going to fall 5% to 10% more between now and this time next year. The largest source of the reduced home prices will come from foreclosures.

RealtyTrac states that nearly 2 million housing units are in foreclosure or are bank-owned, and millions more are likely to join them. None of this sounds good to any home owner looking to sell soon or refiance.

There may be some hope though. Let’s look at some housing predictions for different areas around the country. The following is a snapshot of the housing price predictions from an article written by Beth Kowitt in Fortune’s December 21,2009 issue. The following price outlook takes into account; local figures for income, population, interest rates, and foreclosures.

The best section of the table is the 2011 forecasts. The data is pointing to a bottoming out in most sections of the country sometime in 2010 or early 2011.

These are some encouraging signs that may help to level out the home price declines.

  • Mortgage rates still remain low
  • The Make Home Affordable program is finally showing signs of progress
  • The first time home buyer tax credit and the Move-up home buyer tax credit have been extended until April 30th

Make Home Affordable

This program was developed to help families that are 60 days behind in their mortgage get some relief. The homeowner has the ability to work with the lender to modify their current mortgage in order to see a reduced payment and hopefully avoid a foreclosure. Borrowers are given a 3 month trial period at a modified payment in order to prove they can make the payments. Once the trial ends the loan modification will become permanent. Lenders are able to benefit from the program by avoiding foreclosures and getting incentives from the government to make these modifications.

The requirements to qualify are:

  • The home must be your primary residence
  • The amount owed on the first mortgage must be under $729,750
  • You must be having trouble making the current payment (i.e. 60 days behind)
  • You must have received your mortgage before January 1, 2009
  • Your payment including principal, interest, taxes, and insurance must be at least 31% of your gross income

CNNMoney.com states

The number of long-term adjustments completed under the president’s foreclosure prevention plan rose to 66,465 at the end of December, or 7.4% of all trial modifications started, up from 31,382 a month earlier. According to Treasury statistics, another 46,056 modifications are pending borrower’s final signatures.

These numbers are continuing to grow, the more people that get relief the better the chances are that they will not foreclose on their houses. My fingers are crossed, any reduction in the foreclosure market will help our home values in the Detroit area.

First Time and Move-Up Home Buyer Tax Credits
The first time home buyer tax credit will give the buyer a $8,000 tax credit. To quality you must meet the follow requirements.

  • Enter into a sales contract by April 30, 2010
  • The buyer must not have owned a home during the last 3 years
  • Income caps are $125,000 for singles and $225,000 for couples

The $8,000 is a cap. The policy states that the total amount allowed is 10% of the purchase price of the home up to $8,000.

The move-up home buyer tax credit will give the buyer a $6,500 tax credit. Below are the qualifications for this program.

  • Enter into a sales contract by April 30, 2010
  • The buyer must have owned a home at least 5 consecutive years of the last 8 years
  • Income caps are $125,000 for singles and $225,000 for couples
  • The purchase price of the home must be below $800,000

Again the $6,500 cap is based off of 10% of the purchase price of the home up to $6,500.

Gibran Nicholas of the CMPS Institute, an organization that certifies mortgage bankers and brokers writes

The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules.

One last option many of us have is to refinance our current mortgages using the low interest rates available. You can get a sense of what refinance rates to expect on websites such as Bloomberg and Yahoo Real Estate, as well as from online lenders like Quicken Loans. This could help the average person save on monthly payments and provide some cushion if the job market remains tight. As long as unemployment sits at 10%, I’m not sure how much better the housing prices can get during 2010. If companies begin to hire this year, people may begin to edge back into the housing market. Until then, let’s hope that the government programs listed above can help to level out the prices until people start returning to work.

{ 14 comments… read them below or add one }

Mark January 30, 2010 at

Great post. I myself am interested in buying a property for the first time but after talking to my mortgage lender, I am considering waiting till the end of the year. I know I will miss out on the tax credit if I do that but I rather maximize my advantages everywhere possible, including raising my credit score for less monthly payment. In a way, I am taking on the risk the prices and interest rates will go up before I buy.

However, like you pointed out, it all is relevant to where the property is. I live in one of the more stable locations in the country where the prices fell a little but did not rise a lot either during the housing market crisis. I don’t feel like I would miss out on opportunities or get burned as much as one may in NYC or S.F. so I may be willing to take that risk.
.-= Mark´s last blog ..2010 Reap The Rewards =-.

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Jeffrey Kosola January 30, 2010 at

Thanks for the comment Mark,

I just reviewed your A difference of $44.80 per month post. Looking at the info you pulled from the Fico website (the insert picture) the avg mortgage is $300,000 and they breakdown the credit score/apr/monthly payments you can expect from your own score. It’s a cool image to show the relationship of a credit score to a mortgage payment (although I think they have a vested interest to show it this way, I think the gap is inflated a bit).

Here a quick calculation to think of.
Example #1
A credit score of 760 and up will get a 4.688% apr and a monthly payment of $1554.
A credit score of 640 to 659 will get a 5.731% apr and a monthly payment of $1747.
The difference of course being $193 per month or $2,316 per year. It will take 3.45 years to see the payback of passing up the government $.

Now if your credit is better it will take a lot longer to see the payback.

Example #2
A credit score of 760 and up will get a 4.688% apr and a monthly payment of $1554. (same as above)
A credit score of 680 to 699 will get a 5.087% apr and a monthly payment of $1626.
The difference of course being $72 per month or $864 per year. It will take 9.25 years to see the payback of passing up the government $.

The point I’m trying to make is that unless your credit is pretty low, I just don’t see the point in wasting the chance to use Obama’s money (ok, our money). Now if you are just saving up money for a HUGE down payment that could be another story, but again you can run the numbers and see what passing up $8,000 would do.

Excellent Comment, I love your posts-Numbers dudes are always cool in my book.

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Mrs. Money January 30, 2010 at

We were kicking around the idea of moving to the Detroit/Ann Arbor area but I think we’ve nixed it. I don’t want to have my hubby searching for a job for months. It would be nice to take advantage of the lower home prices though!
.-= Mrs. Money´s last blog ..Is Being Frugal Always Being Different? =-.

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Jeffrey Kosola January 30, 2010 at

Yeah, this isn’t the place to move to right now. You can get some great deals now. I’ll even cut you in real cheap on my house. If you are ever serious about coming to the home of the best NFL team, drop me a line.

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bryan June 21, 2010 at

You better hurry and get here while the homes are still cheap!!!!!!!! where else can you get a nice 3br 1.5 bth 1300 sqft/ w basement ranch home in a major metro for 60k?.. I did it with no mortgage!! and there are jobs here for people with drive and a good work ethic…or you can go to, lets say philadelphia and pay $470,000 for the same home and be around more jobs. It’s worth your time to think about the suburbs (riverview, wyandotte, taylor, brownstown) of the detroit metro area.

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Financial Samurai January 30, 2010 at

Jeff, you know what you should do? Ask your friends to Zillow their properties and see what the charts look like. There seems to be a huge rebound since last summer. It may give hints of what’s going on.

I’m definitely buying another rental property this year.. hopefully in Nevada! Here some examples of using the zillow charts that may show some hints, even though I think it’s kinda rubbish.

http://www.financialsamurai.com/2009/09/21/immediate-proof-why-net-worth-is-rubbish/
.-= Financial Samurai´s last blog ..The People Asked To Get ROCKED & A Boulder Drops On Their Heads =-.

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Jeffrey Kosola January 30, 2010 at

I’ve checked out my families charts and see the same thing as mine. Big dip and then a recovery. I really don’t put a lot of stock in the pricing, but I think its a starting point.

Good luck with the rental, remember once I’m out of debt we would still love to come rent in Tahoe.

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Financial Samurai February 4, 2010 at

Come on buy! Good price fo you! Seriously! 🙂 You’ll love Tahoe.
.-= Financial Samurai´s last blog ..The Most Important Tip For Job Hoppers: Join People, Not Firms =-.

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Daddy Paul January 30, 2010 at

$83,000 for a house in Detroit! They must be factoring in some pretty pricey suburban homes. I see for sale signs everywhere around. I know of 10 year old 4 BR home with 5 acres with 400′ river frontage that went for less than 100K in the outer suburbs. I bet the real unemployement rate in Michigan is 30%.
.-= Daddy Paul´s last blog ..The 2010 IRA portfolio =-.

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Jeffrey Kosola January 30, 2010 at

I think the Detroit number includes Birmingham and Northville in the equation, both with a ton of $300-$900k homes. I think the unemployment in the city is around 30%. But I still see help wanted signs around here. They are jobs nobody wants. I have two jobs and could go get another one if I wanted, nobody wants to work in service. Oh well, I would like to see my home value come back a little so I can move further west away from the city.

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Jeffrey Kosola January 31, 2010 at

Forest,

With your current lifestyle I think waiting is the perfect idea. How much would a house/apt in Egypt cost??

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youngandthrifty February 4, 2010 at

awe man..

I think I need to move to the States!

You know the median home price in Vancouver (detached) is $788,000???!
It’s up 20% since last year January.

Le sigh…
.-= youngandthrifty´s last blog ..TFSA (Tax Free Savings Accounts) Basics =-.

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Jeffrey Kosola February 4, 2010 at

Come on over. If you come to Detroit you can even pick up a house for a grand. It may not be quite as nice as Vancouver but the money is right 🙂 Wow that’s a crazy price. You’ll have to be a multi-million to afford that.

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