So the end of another rather interesting year is behind us.  Some of us lost astronomical amounts of wealth in many asset classes and some of us have taken advantage of a down market and capitalized on opportunity, as a result making money.  Regardless of where you are there, how about making a side New Year’s Resolution that you will make a conscious effort to build your personal net worth.  Those with IRA’s, you’ve seen your accounts recover a little this year, right?  That’s a start!  This article will be a brief recap of 2009 and some of my predictions for 2010, mostly concerning the housing market.  By no means should these predictions be taken in an advisory capacity.  They are rather my gut feeling on a few main topics I like to research.

National Housing Market

The national housing market experienced one of the largest downward adjustments in American history.  My opinion is that the bulk of the adjustments are behind us and there are indicative factors pointing to a slow recovery as inventory levels fall and sales volume increases.  The main reason for this acceleration…..?  It is no secret that it is entirely due to Four Factors:  

1. Affordable prices
2. Historically low lending rates
3. Extension/expansion of government homeowner tax credits
4. Continued foreclosure pressure

Absorption Rate

Nationally, existing home inventory is down about 13% from its peak levels in mid 2008.  An absorption rate indicates the number of months it takes to sell the current inventory at the present rate of sales.  The national absorption rate went from almost 12 months in early 2008, down to just about 7 months today.  That is a huge positive indicator for a skeptical housing market.  Let’s call a spade a spade:  The surge has been largely artificial sales from government incentives and the Fed’s reducing interest rates to near mill.  Can this sustain?  Well, my opinion is that this creates a very weak base for any real estate bottom that some feel is so imminent in the immediate future.  Example:  Cash for Clunkers.  How have car sales been since that expired? 

Mortgage and lending rates have already risen, however continue to fluctuate weekly it seems.  That said, I believe rates will slowly climb and one of my Four Factors will no longer be a main component in the rate of sales.  On April 30 when the First Time Homebuyer Tax Credit expires, that will be 2 of the 4 factors gone. 

What Will Happen

With unemployment expected to peak sometime in 2010, expect further pressure on rents which will ultimately present further downward pressure on home prices.  There are still plenty of deals to be had.  Today, you can take the very low rates and buy at current value, additionally getting any government tax incentives.  Or, you can sacrifice today’s lower rates and government incentives and pay a lower price for real estate as we get further into 2010.  Kind of Catch 22’ish, don’t  ya think?  Those who fear that they are missing the boat while they repair their credit could be in for better deals in 2010, albeit without the incentives.

The Unknown of Bulk REO’s and Backlogs

The biggest unknown today is the inventory that we don’t know exists.  Bulk REO’s, backed foreclosure logs, and new PUD/High-rise units.  I have banking experience and have a great relationship with 2 major banks that have bulk REO’s.  They mentioned to me that there are a few states that are showing indicative signs of a recovery with record sales and rising median home prices.  They warned not to count them out of the crisis yet as they said there is a HUGE backlog of foreclosures in the pipeline in both residential and commercial units. 

Hint:  The states happen to be in the south and were major speculative markets during the boom.  That said, I am glad to be a real estate investor.  At first glance when things were moving quickly, I would think that I needed to buy in 2009 or I would miss out.  I am definitely wrong.  I WILL GET GREAT DEALS BEYOND 2010… and you can take that statement to the bank!

The expiration of government incentives and Fed Mortgage Backed Securities purchases should be a factor in the decline of real estate demand that we are currently experiencing. 

In conclusion, I truly do think that today is a great time to buy.  The advantages and incentives are there.  On the other hand, I believe that we will see stagnation in prices into 2011 and it will be a bunny slope recovery, not a triple diamond 70 degree slope.  Recovery will not be easy, nor will it be quick.  We will have to remain patient and see what the labor markets provide because unemployment is the leading indicator in the recovery of our home values and economy.  

I recently read that major corporate giants who experienced cutbacks are now behind on inventory and orders.  Hiring is going to start up again very soon and that could be a major player in the employment/unemployment problems.  Whether the current rate of home sales are propped up by government incentives or any other phenomenon, money is being turned over and inventory is moving.  That’s all we can ask for at this time. I’ll take it.

About the author:

Scott Allan is the owner of New Jersey Real Estate Guys in Northern NJ where he focuses on macro economic research and residential home sales.  Scott also owns My Realty Source (SW Florida Wholesale real estate and REO’s).  In New Jersey, Scott focuses on all northern NJ residential markets in the New York metropolitan area where he started in 2003 in selling Hoboken real estate and Montclair NJ homes for sale.  Scott also is co-owner of TPM Properties in SW FL where he assists in individual or bulk foreclosure sales with his investors, utilizing his banker contacts for exclusive deals.