Housing Forecast 2010

There is a difficult issue facing buyers as we enter the busy spring real estate market: Should you buy soon, prior to an increase in mortgage rates? Or, should you hold off for a couple of months, when real estate prices are predicted to be considerably lower?

Naturally, any answer could easily be wrong; however, for the first time in recent years, real estate economists have never agreed amongst themselves concerning their short-term, national predictions for the real estate market as they do now.

The most common predictions state that mortgages should climb by the end of March, landing somewhere between 5.5-6% for a 30 year, fixed-rate loan – today, that rate is 5%, on average. Foreclosures are also expected to rise during the summer months, which will flood the real estate market with inexpensive properties, thus decreasing the market prices overall.

Mark Zandi, a chief economist at economy.com, advises that you do not rush into anything – only if you find a property that you are really enthused about. While you might be purchasing the property at a rock-bottom price, you will still get an incredible rate. If you stay with the property, according to Zandi, you will reap the benefits after a few years. This is because property values will have appreciated in a few years.

There are two things that can increase rates, according to some economists. For one, the Federal Reserve is ready to halt the subsidies of mortgages next month, when it is done with a $1.25 trillion earmark for securities which were previously owned by Fannie Mae and Freddie Mac. Many investors had refused to buy into such securities, and as a result, the government bought into them during the market crisis. Most economists predict that investors will come back to buy into the market, but only if the rates are lower to provide them with an incentive to do so.

Many economists also believe that the country is in the early beginnings of recovery, and as a result, rates will increase. Zandi, along with others, predict that rates should not go above 5.5% by December of 2010. If they were to rise beyond that, the government would more than likely continue in their subsidies, in order to protect the real estate market from further damages.

On a different note, Cameron Findlay, of Lending Tree.com, predicts that rates can climb to 6% even without the influence of the federal government. In order to arrive at this assessment, Findlay evaluated the mortgage troubles of national households, and used this as an indicator to determine how fast the states can survive the economic recession.

For example, in New York, an average mortgage payment is a little over $1,300, which amounts to 34% of the household income. With an unemployment rate of 9%, New York is not far behind the national unemployment average of 9.7%.

The ratio of debt to income in Connecticut is much lower – 24% – but the unemployment rate is lower as well, resting around 8.9%. For this reason, people would be in a better condition to buy in Connecticut than in New York.

New Jersey, on the other hand, finds itself very similar to Connecticut, except with the unemployment rate. The debt to income ratio is 26%, while the unemployment rate is 10.1%. In this regard, New Jersey’s housing recovery efforts would lag significantly behind that of New York.

Zandi also says that he believes that real estate prices should decrease by 8% throughout 2010, ending the decrease in December at a 34% lower rate than they were in the spring of 2006. Prices will rise only after the foreclosures begin to decrease. According to Zandi, it will be a while – years – before you see a normal increase in real estate prices.

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