Up Or Down? What Will Happen To Your Real Estate Investment Market In 2010

By Bob Massey

These days it's hard to know what is happening in the housing market. Is it rising or falling? There are plenty of people out there trying to predict what is going to happen. The problem is that they are looking nationwide or citywide. Investors need to know what is happening in their specific farm area, though. Here are the top ways to determine whether your market go up or down in 2010.

There are a number of factors that drive real estate prices up or down in any given area. Each market reacts to its own set of conditions, and even different neighborhoods and types of properties will react according to its own set of circumstances.

To narrow the trend data down to your area, look at trends within a 1 mile radius of the center of your area and look at homes that are within 10% of the square footage of the median size home and lot that you are looking for.

Home prices are for the most part determined by the months of housing inventory available. Price changes tend to lag behind changes in inventory by about 6-10 months. So if housing inventory increases, you will see a decrease in prices about 6-10 months later. If the inventory decreases, prices will then rise about 6-10 months later. Real estate investors are able to use short sales to offer deeply discounted prices when they sell houses before the rest of the homes in an area catch up.

As a general rule, prices will fall if there are 8 or more months of inventory available. They will rise if there are 2-3 months available. This is a solid rule to use for your market in 2010.

If your area has a high demand for starter homes that was not quenched by the first round of the First Time Homebuyer credit, there may be a continuation of the feeding frenzy experienced in some markets. With the extension to all buyers, a larger supply of starter homes may be available in some markets, spurring sales and boosting prices. There are indications that the tax credit is just a minor factor in the economic recovery picture, though. Only 6 percent of homeowners who bought homes for the first time this past fall did so because of the tax credit.

Members of Gen Y, those born between 1977 and 1994 are now in their prime home-buying years. A small increase in demand could spark new building in the areas of the country that were able to generate jobs and stay relatively stable during the recession.

Another factor that drives prices is cost of ownership. The U.S. Treasury will play a part in determining whether 2010 is naughty or nice to homeowners. The Federal Reserve showed little incentive to raise interest rates in 2009, but things may change in 2010. There may be pressure on the Fed to increase interest rates to attract more buyers of U.S. debt. Even a small increase in interest rates will drive potential home buyers out of the market.

State income taxes and local property taxes could increase in the coming year as the local governments face pressure to balance their budgets in 2011. Any increase in property taxes will decrease the number of buyers in the market.

Last, but certainly not least, will be the impact of foreclosures on the housing market in many communities. I believe there will be spikes that occur in markets that heavily used the Option ARM for mortgages between 2004 and 2007 that are going to reset higher as interest rates push payments up. Communities still drowning in unemployment will also experience higher foreclosure levels.

These are some of the factors that will have an impact on home prices in your local market in 2010. Make sure to apply the ones that fit, because each market and micro-market will act differently this year. - 31386

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