Housing Market Predictions for 2010: How Good Will It Get?

Last Updated Feb 2, 2010 5:14 PM EST

Confused by conflicting housing market predictions for 2010? You're not alone.

Let's review the recent news:

  • The National Association of Realtors reported that pending home sales index rose 1 percent in December, and remains 10.8 percent above the level set in December, 2008. In November, the pending home sales index fell 16.4 percent, as home buyers thought the home buyer tax credit was ending. The stock market rose 111 points today, partially in response to the strong housing numbers.
  • Before the opening bell this morning, new home builder D.R. Horton announced it had earned $192 million, or 62 cents a share, well beyond earnings estimates, which had called for a loss of $62 million. The company said that new home orders and completed new home sales had increased significantly in its first quarter. How much does this relate to the extension and expansion of the home buyer tax credit? Probably quite a bit.
  • A story in today's Washington Post noted that 9.1 percent of FHA borrowers had missed at least 3 mortgage payments as of December, up from 6.5 percent a year ago. The borrowers who are in severe default are those who got their mortgages over the past two to three years, and had extremely low credit scores. FHA has been increasing its market share since the housing bubble burst, often lending to home buyer with extremely low credit scores. In fact, FHA recently announced changes that would allow borrowers with a credit score of 580 to get an FHA loan with 10 percent down. There is concern in Washington about the fiscal strength of FHA, which has tapped almost all of its reserves. Once gone, the agency would need taxpayer help - setting up another huge fight in Congress.
  • The Commerce Department reported today that U.S. housing vacancies remained near an all-time high. For rental housing, the rate fell to 10.6 percent in the fourth quarter of 2009, from 11.1 percent, an all-time high. For homes typically occupied by the owner, the vacancy rate grew to 2.7 percent from 2.6 percent. And, the U.S. homeownership rate fell from 67.6 percent to 67.2 percent - the lowest since 2000.
  • The number of new, single-family homes sold has dropped 75 percent since 2005, from 1.2 million units to 342,000 units last year, according to the Treasury Department's U.S. Economic Statistics monthly data. Annual housing starts dropped from just over 2 million units in 2005 to 557,000 units in 2009.
  • Home prices continued to decline at the end of last year, according to the latest report from First American CoreLogic, Inc. National home prices declined 5.7 percent in November 2009 from a year earlier. The company is project further home price declines with a modest recovery in the Spring. Including distressed sales, the states with the biggest home price declines were Nevada (-22.5 percent), Arizona (-14.9 percent), Florida (-13.7 percent), Michigan (-12.6 percent) and Idaho (-11.0 percent). Since 2006, home prices have declined 30 percent nationally, although much more in some states. Mark Fleming, chief economist for First American CoreLogic, said he remains concerned about the shadow inventory of foreclosed homes, negative equity, and "the ability of loan modification programs to mitigate this risk."
  • The unemployment rate has worsened in many states. Without a job, it's going to be tough to make mortgage payments and get debt paid down.
It's clear that a lot of this mixed housing news stems from the extension and expansion of the $8,000 home buyer tax credit. It's also clear based on November's numbers of new home sales and existing home sales that the housing market could be in for a rough ride once the home buyer tax credits end.

That day is coming sooner than you might imagine: April 30, the date your home purchase contract must be finalized, is just 87 days away - and counting.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and the upcoming Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.
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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.