Existing home sales in the U.S. rose 10.1% in October, 2009. This is good news for the housing sector that has been hurt by an exceedingly large inventory of unsold homes and unprecedented rates of foreclosure.

Government Policy

The ability of the housing market to stand on its own, unaided by federal stimulus, will be tested very soon. The end is nearing for two federal policies that are credited with providing a boost to the housing market this year.  The $8,000 tax credit for new home buyers was extended, but is scheduled to end in the spring of 2010. Secondly, the Federal Reserve, which purchased mortgage securities in an effort to keep mortgage rates low, has indicated that aid will soon cease as well.

The key will be to stabilize the number of unsold homes so the market can operate normally. Experts predict that the housing market has about six months to reduce inventory encouraged by government incentives.

Home Prices

The spring of 2010 may be the market’s best hope for a significant upswing in home values—the first in more than three years, says Michael Englund, chief economist at Action Economics. When the weather gets warmer in spring, home buyers are most active and housing prices often move higher.

While we don’t often equate higher prices with good news, a rise in home prices reflects equity growth. Because homes are a critical component of wealth, this will be a welcome trend for those of us whose wealth is represented largely by our homes.

Housing Inventory

Excess inventory has caused an imbalance in the housing market’s supply and demand balance. There are signs of improvement, however.  A ‘normal’ inventory of existing home supply would be equivalent to 5 ½ to 6 months supply of homes. While October, 2009, saw a seven months’ supply of existing homes on the market, this was down from an eight month supply in September.

Beyond the inventory accounted for, economists and real estate experts are still speculating about how much “hidden supply” is out there waiting to come to market. This hidden supply is in the form of buyers who are waiting for better market conditions before listing and the many foreclosed homes that are in process and not yet back on the market. On a positive note, home builders are adding very little new supply, which is helping to stall further imbalance.

If you’re in a position to invest in today’s real estate market, you may be able to take advantage of some once-in-a-lifetime deals. All investment comes with risk, however, and this is no time to ignore warning signs of deals that can sour quickly. Keep these guidelines in mind when considering your potential investments:

Rise above the times. Investors who are able to navigate tough times such as these and still come out ahead are in the best position for long-term success due to a consistently strong track record.

Do your homework. If you’re selling, be sure to pre-qualify buyers to avoid a deal falling through because of inadequate financing.  Avoid unpleasant surprises by knowing exactly who and what you’re dealing with—spend the necessary time and energy to perform thorough due diligence.

Seek out alternative and flexible lending. Cash is always most desirable and gives you the greatest negotiation leverage.  If possible, generate private money and financing solutions in order to avoid traditional, now stricter, lending.

Don’t settle.  In a buyer’s market, savvy investors are wise to generate as many prospects as possible and select from among the best.  Establish criteria for your goals and don’t compromise. If a real estate deal doesn’t meet your standards, move on to the next one.

Plan your exit strategy and have more than one. Contingency planning and multiple exit plans are essential to mitigating risk. Always have more than one backup plan, and be ready for worst case scenarios.  Ample equity and cash flow are essential.

As many analysts predicted, the foreclosure trend that began in 2008 worsened sharply in 2009. Despite substantial government bailout, 2009 brought with it some of the highest residential foreclosure rates in history. While existing home prices followed foreclosures and fell dramatically, sales did bounce back slightly, due, in part, to the first time home buyer tax credit.  Leveraging the tax credit incentive, builders lowered prices to offload excess inventory which helped new home sales to improve.

So, what can we expect in 2010? Here’s a recap of some of the agreed-upon predictions:

• The decline of the residential housing market isn’t over. It will probably dip again mid-year before entering into a true recovery in the second half of 2010.
• Government incentive and assistance programs scheduled to end in the spring will slow home sales.
• Rising foreclosures, linked closely to high unemployment, will result in excess inventory and will continue to negatively influence home prices.
• 30-year fixed mortgage rates will begin to rise from historic lows and level off in the 6 percent range.
• Low vacancy, rock bottom rent, and high default rates will continue to plague commercial real estate for the foreseeable future.

With such gloomy predictions, it’s important to keep in mind that trends aside, the real estate market is still alive. People are still selling, and people are still buying. If you are in a position to take advantage of this buyer’s market, consult a local realtor to discuss your strategic options.

You’ve probably already called the cable guy and arranged for your utilities to get hooked up before move-in day, but here are a few things that will help you settle into your new digs that you might not have thought of:

• Change the locks. Safety first. Check with your landlord about providing him or her with a new key, but don’t risk an old tenant dropping by uninvited.

• Consider your electrical needs. Lamps, stereos, televisions, game systems, and DVD players tend to fight for outlet space. Plan ahead for what will need to go where and make sure you have the proper outlet configurations.

• Check for unwanted guests (like rodents and bugs). If they’re not paying rent, they’ve got no business in your apartment. Call an exterminator before you move your things in and schedule maintenance visits as necessary.

• Plan a cleaning day. Hopefully, your landlord has already given your apartment a good cleaning, but most people like the security of knowing that something is really clean before using it—especially the bathroom, kitchen, and floors. If possible, plan a cleaning day before your move-in date so you don’t have to shuffle things around.

• Clean and disinfect the fridge. While you’re cleaning, take this opportunity to remove spills, food residue, and odors from your refrigerator before you stock it.

• Change the toilet seat: Speaking of clean, this is one area you don’t want to make any assumptions about. For under $20, you can get a factory-fresh commode topper. We highly recommend it!

• Make it your own. You’re starting with open floors and bare walls. Take advantage of this time to imagine the perfect living space and create it!