As we approached late 2009, we saw a glimmer of light at the end of the tunnel as home sales accelerated to new highs in more than 2 years. Many assumed that we have hit bottom in home prices with increased activity from home purchasers bidding against each other in auctions from Florida to Nevada, Silicon Valley and New York.
He envisions that home costs may fall another five percent to 10% in 2010 with some extraordinary cases of thirty percent in places like Miami. There’s a tiny likelihood that home costs may recover in 2011 and it’s still too soon to inform. Zandi fears that the many millions of disturbed loans that don’t get modified will pile up and transform into more foreclosures. RealtyTrac guesstimates that 2,000,000 housing units in the United States are in foreclosure or bank owned. There’s a risk that many more may pile on to the inventory. Zandi is forecasting 2.4 million new foreclosures in 2010. He’s expecting that banks will become more assertive in listing more of their properties in the first part of the year. The bank’s actions of junking more properties in the market will cause prices to fall much more.
Currently, the property market is not able to stand on its own as it is artificially propped up by the extended first-time-home-buyer tax credit coupled with the government’s expensive purchases of mortgage backed securities (MBS). The U.S government has been purchasing mortgage-backed-securities or the bundling of home loans as of late 2008. The government purchases of these securities have helped to keep mortgage rates low and attractive. Mortgage-backed securities were once popularly sold through Wall Street to world-wide investors betting that U.S. housing will continue to prosper. These investors purchased MBS in hopes of earning a favorable return. This of course is the contrary as we are witnessing today with the demise of U.S. housing causing the market demand for mortgage-backed securities to shrink with no buyers or investors. As a result, the U.S. government stepped in to sustain the purchases of mortgage-backed securities so as to preserve low mortgage rates in an effort to prevent further hurt to U.S. home prices. By March of 2010, the U.S. government would have completed its purchase of a whopping $1.25 trillion worth of mortgage-backed-securities. There is speculation that the government may end its purchases of mortgage-backed-securities by March 2010. This may result in mortgage rates to spike by a full point. This may turn away many homebuyers as it raises the cost of buying a home.
All these concerns were tied into Economy.com’s housing price prediction for 2010 with reference to local figures for income, population, interest rates and foreclosures. Their 2009 projection of a 14.5% reduction were quite realistic and not way off from the reported 13.2%. According to Zandi, the severely hit areas such as Nevada, Florida, Arizona and California will encounter more foreclosures. He indicated Miami was the worst market where the 2009 median home price of $183,530 is anticipated to drop another 33% in 2010.
Zandi indicates the less debatable areas like the Pacific Northwest, New York and Virginia where home costs are pricey compared to rents. The better performing regions are found in the pockets of the Midwest where the rural and energy economies are stronger in places like Dakota, Kansas and Nebraska. Pittsburgh which never had a housing bubble is the sole home market that’s anticipated to climb by 0.41% in 2010.
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