Housing outlook for 2010

What does 2010 hold for home buyers, sellers, and people just staying put? I’d like to share some of the more informative predictions I’ve come across on the web.

The Wall Street Journal sees 2010 as a year of 1) higher mortgage rates, 2) tighter loan standards from Fannie Mae and Freddie Mac (which back 90 percent of all mortgages), 3) sluggish loan modifications, 4) more adjustable-rate mortgage (ARM) resets, and 5) uncertainties surrounding homebuyer tax credits. The link to the full article is here, but here’s what they have to say specifically about ARM resets:

More loan resets: Analysts and pundits have been warning for years about the coming wave of option adjustable-rate mortgages that will jump to sharply higher payments beginning this year. Those loan recasts are concentrated particularly in high-cost housing markets, such as coastal California and other areas where homes became increasingly unaffordable at the height of the housing boom. Meanwhile, more interest-only loans that allowed borrowers to avoid making principle payments for three, five, or seven years will reset to higher payments. Those loans became especially popular among borrowers of jumbo loans, which are too large for government backing and range from $417,000 in most parts of the country to as high as $729,750 in the most expensive housing markets. Many of these borrowers owe more than their homes are worth, leaving them particularly vulnerable to default if they can’t afford the higher payments. That could cause more pain for mid-to-upper end housing markets that began to show more signs of stress in 2009.

Meanwhile, CNN Money suggests one of the major issues of 2010 could be a decline of at least 3 percent in home prices (note: I found this piece thanks to Bubble Meter):

NEW YORK (CNNMoney.com) -- After four months of gains, home prices flattened in October. Worse yet, industry insiders think that they'll soon start to fall.

Prices have risen more than 3% since May, according to S&P/Case-Shiller.

But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.

"We've seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport of IHS Global Research. "But there are really good reasons to think prices will now start going down."

There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits.

A few final insights: 1) although they aren’t talking about just foreclosures, the Los Angeles Times speculates that 2010 may be the “year of the real estate auction,” 2) the housing & economics blog Calculated Risk says short sales will rise in 2010 (and gives helpful supporting graphs), and 3) the Atlanta Journal-Constitution’s own forecast is mixed.