Home Price Outlook for 2010 and 2011

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.

Article by Jeff Kosola

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