2010 Market

The market manipulations that the Fed’s have used this year were about everything they could think of to avert a total collapse.

First, the first time home buyer tax credit. The effect on the market was huge, resulting in almost half of the buyers being first time buyers.

Next was the almost non-stop, on-again, off-again rate of bank owned properties coming on the market for sale. Here in the Inland Empire, we even have a shortage of homes for sale. The biggest cause of a lack of bank owned homes for sale was the loan modification programs and the requirements for banks to pick up their efforts in loan modifications.

Perhaps most importantly was the Fed’s purchases of mortgages. About a trillion dollars of mortgages were purchased by the Fed’s, thereby, keeping mortgage interest rates artificially low all year.

So, where are we going now? The First Time Home Buyer and its new expanded version to include “Move Up” Buyers are set to expire April 30th of 2010 and escrow must close by June 30th of 2010.

Next, the loan modification efforts may continue but the re-defaults may start to show next year. The re-defaults will, for the most part, result in Short Sales not Foreclosures, due to the newly launched efforts by the Fed’s to streamline Short Sales. A move to Short Sales will save banks from even larger losses by foreclosures and perhaps change the psych of the public because Short Sales are not traceable like foreclosures are. So the head lines in the news media will expand on how much the foreclosure rates have fallen, and that the market is improving.

As for interest rates, the Fed, having already spent about a trillion dollars on mortgages, is about to stop those mortgage purchases. This will leave interest rates no where to go but up. My guess, at the very least, is 1%; perhaps a bit more by years end 2010.

Then there is what’s called the shadow inventory. These homes are owned by the bank and have not been placed on the market for sale and they include the mortgages that are 90 days or more late. Nationally those numbers are in the area of 7 million. Now that’s a force in the market to contend with.

Now add in the current trend of more difficulty qualifying for a home loan. These new qualifying guidelines and the new rules on appraisers will cause escrow cancellation rates to increase significantly.

The bottom line is, can the Fed Policy Makers find a balance with the Fed Regulators? Thus far they appear to be at odds with each other. We have all these programs to subsidize housing value and increase sales, then we have the Regulators who want to increase the loan qualification guidelines making it difficult to get a loan.

My opinion is housing prices are stable in the first quarter, then fall in the second quarter. The third and fourth quarters will depend on the unemployment rates and whether or not the banks find a balance of inventory for sale versus the demand for purchases, at the same time, Policy Makers must find a balance with Regulators.

Balance is the key to 2010.