Ahhh. The new year is here. Have you seen all the articles out there calling the past 10 years the lost decade? From a personal perspective I’m not sure I would go quite that far. There’s something unsettling about the idea that the last 10 years were wasted. But I do know quite a few home sellers who are ready for something different than what 2009 offered.
So what will 2010 look like for the real estate markets? Here’s what I know and then a little about what I believe.
Interest Rates Will Increase
I’m calling this something I know rather that something I believe. The Federal Reserve spent all of 2009, and about one trillion dollars, buying mortgage backed securities. That translates to about 80% of all mortgage backed securities.
The Fed’s activity in this market is the reason you were able to get a sub 5% mortgage last year. They budgeted $1.25 trillion and it has almost run out. Not sure they could extend this program even if they wanted to. The money that was spent really did not exist and was added to the national debt.
The pace of the Fed’s purchases of mortgage backed securities slowed recently and rates responded by rising about 1/2 point. It’s pretty clear that when they stop the purchases rates will rise. How much rates go up depends on the confidence of the free market as investors step in to purchase mortgage backed securities, or not.
Tax Credit For First Half 2010
The First Time Home Buyer Tax Credit was extended and expanded late last year. The first time buyer part was extended to cover homes under contract by April 30 and closed by June 30.
And the tax credit was expanded to cover move-up (or downsizing) buyers who have owned their current home for five consecutive years of the last eight.
There is evidence that the First Time Home Buyer Tax Credit stimulated home sales last year, so it is expected this extended program will do the same in the first half of 2010.
Pent Up Demand To Move
Here’s the what I believe part. When people desire to move, they find a way to make it happen. If you don’t have a job and find one in a new city, you move. If your family just increased to the point where there is not enough room for everyone, you move. If there has been a death or divorce that changes your economic situation, you move.
The problem is that many people who have valid reasons to move have put it off because of the market. This is most apparent in cases where someone had a home to sell in a market where prices declined.
Well, we’ve had the current market conditions for several years now and most economists think it may take a while for prices to recover. And the pressures of the reasons to move I listed above are not going to subside.
I believe this will be the year people accept the fact that selling a house at a reduced price and buying another house at a reduced price is not necessarily a bad thing. As a matter of fact, if you are buying a more expensive house, this could actually be a golden opportunity to make money in the long run.
