Housing outlook for 2010

This year the housing market showed signs of life. But with foreclosures and unemployment climbing, prices have further to fall.
By Beth Kowitt, reporter
December 15, 2009: 09:43 AM
(Fortune magazine) -- In a dour year for the economy, the housing market has offered some glimmers of hope. Home sales have improved, recently hitting their highest level in more than two years. There's been talk of bidding wars resuming in places like Silicon Valley and New York City. And cocktail party chatter everywhere has started to turn to talk of a bottom. So at least where housing's concerned, things are looking not so bad -- right?


If that's what you think, you may not want to invite Mark Zandi to your next cocktail party. The chief economist of Moody's Economy.com, Zandi has some sobering predictions: Home prices are going to fall 5% to 10% more -- and over 30% in places like Miami -- between now and this time next year. Then they might start turning around. (Emphasis on "might.")


At the top of Zandi's list of worries are foreclosures -- specifically, the millions of loans that are in foreclosure or headed there that can't or won't be modified. According to RealtyTrac, nearly 2 million housing units in the U.S. are in foreclosure or bank-owned, and millions more are likely to join them.


Zandi estimates that 2.4 million homes will find their way into foreclosure next year. He expects banks to start putting those properties on the market more aggressively during the first half of the year, resulting in a flood of cut-rate inventory that will drag prices down.


It would be one thing if banks could sell into a hungry real estate market. But that brings us to Zandi's second concern: skyhigh unemployment.


October's 10.2% figure was higher than what most economists forecast for the peak. A soft job market, especially one this soft, means potential buyers don't have money to pour into new homes or the confidence that they'll be able to hang on to their jobs and pay the mortgage on their existing home.


Another concern: Policymakers will pull their support from the market prematurely. Aggressive government moves, like the recently extended first-time-homebuyer tax credit and the Fed's purchase of mortgage-backed securities, have been propping up the market.


The purchase plan is set to expire in March, which Zandi says could bump mortgage rates up as much as a full point. "That raises the cost of buying a home, and in this fragile market people won't buy," he says. "And that's a problem."


All those factors are figured into Economy.com's housing price outlook for 2010 -- as are local figures for income, population, interest rates, and foreclosures.


The results are broken into 100 metropolitan areas. (Last year the projections were pretty accurate, forecasting a 14.5% decline in 2009; the actual figure is likely to come in around --13.2%.)


As the sea of red above shows, the numbers are negative across the country.


The weakest areas are Florida, California, Nevada, and Arizona -- what Zandi calls the "usual suspects" -- where foreclosures are highest and likely to rise. The worst market: Miami, where the 2009 median home price of $183,530 is expected to fall 33%.


But Zandi also points to less discussed regions where prices are still inflated relative to rents, like the Pacific Northwest and New York through Virginia.


If there's a bright spot, it's pockets of the Midwest -- states like the Dakotas, Kansas, and Nebraska, which have stronger economies based on agricultural and energy industries.


Then there's Pittsburgh, which didn't have much of a housing bubble to begin with and is the only market projected to grow next year, up 0.41%.


The good news? "It's clear we're closer to the end of this crash than the beginning," says Zandi. Housing is more affordable, and construction is still low, so sales will eat up excess inventory. "We're moving in the right direction, and that's reason for optimism," he says.


Another plus: He says there's almost zero possibility of another U.S. housing bubble anytime soon.

Home sales contracts soar

Home sales contracts soar
National Association of Realtors index spikes 32% as buyers take advantage of first-time homebuyer tax credit.
By Les Christie, CNNMoney.com staff writer
December 2, 2009: 02:51 PM
NEW YORK (CNNMoney.com) -- Americans are inking a lot of deals to buy homes.


In October the National Association of Realtors recorded an unprecedented ninth consecutive month of increases in the number of signed contracts.


Although these are not closed sales, and some deals can fall through, signed contracts are a good indicator of where the housing market is headed.


Between September and October NAR's Pending Home Sales Index rose 3.7% to 114.1 from 110 in October. But the index is 31.8% higher than a year ago, when it was 86.6. That's the biggest year-over-year gain in the history of the index. The PHSI is also at its highest level since March 2006.


NAR's chief economist, Lawrence Yun, gives much of the credit for increased sales to the homebuyer's tax credit, which first-time homebuyers could claim to reduce their taxes by up to $8,000.


"The tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future," Yun said in a prepared statement.


The credit had be due top lapse on Dec. 1, so many October buyers may have acted to get in under the wire.


However, the credit has been extended through the middle of 2010 and expanded to include many move-up buyers. The housing industry hopes that will keep sales perking until the economy picks up and markets return to a more normal condition.