There is widespread agreement that problems in the housing market caused the financial crisis and led to the recession.  It’s important to note, however, that the housing market is inextricably linked to the employment sector and a sustained improvement for housing might not be realized until the broader economy, including the job market, has recovered.

Demand for housing is driven by demographics—the number of new households being created—and the jobs picture. The job picture, in particular, is crucial for residential real estate since employment allows homeowners to keep their mortgage current and avoid foreclosure.

Therefore, if you’re anxious to predict the value of your home one or two years from now, it’s worthwhile to consider the status of the labor market and the progress being made in the area of jobs creation.  Remember too, that real estate conditions vary greatly by region, so keep your eye on the local job market as well as what’s happening on a national level.

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.

Beginning in 2010 there are 39 active listings available on Bird Key, identical to the beginning of 2009 with prices ranging from $539,900 to $9,490,000. There are 8 pending sales to start the year.

Bird Key 2009 Year End Sales Statistics

Bird Key 2009 Sales

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.

In the last report of 2009 by Mortgage-industry giant Freddie Mac, the rate on a 30-year fixed loan rose to 5.14 percent, up from recent lows below 5 percent.  The report also revealed a higher cost of adjustable-rate home loans. This rise is consistent with predictions that the 30-year fixed rate will reach 6 percent in 2010. While still low by historical standards, this is a change that affects the delicate state of the housing market which is inextricably linked to the overall economic recovery.

Tax incentives for first-time buyers and low interest rates are the two factors that have most influenced the recent welcomed increase in housing demand. However, the tax breaks are scheduled to end by mid-2010 and the Fed plans to stop buying mortgage bonds in the first quarter. This will stop the flow of money into the market for housing finance, and may constrict available credit.

Along with interest rates, lending standards are a key factor of housing market recovery. The two go hand in hand since borrowers can only take advantage of low interest rates if they get approved for a loan. With high foreclosure rates expected in the new year, banks and regulators are guarding against the risk of bad loans.

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.

70% of 2009’s sales were single family homes and 30% were condominiums. Of the total sales, 73% were properties that sold for $250,000 or less, 18% were sold for between $250,000 and $500,000, 6% sold for between $500,000 and $1,000,000 and 3% sold for over $1,000,000.

As the statistics relate to listed properties at year end we have 10.1 months of inventory overall. There is only 8 months of inventory for properties listed under $500,000, in the price bracket of $500,000 to $1,000,000 there is 23.4 months of inventory and over $1,000,000 there is 46 months of inventory. In general six months of inventory is considered a neutral market meaning neither a buyers or sellers market.

Obviously the first time home buyer tax incentives coupled with low interest rates has had a wonderful effect in lowering inventory for homes listed under $500,000. Here’s to hoping that buyers begin to realize home prices have bottomed out and we start to reduce the inventory of luxury homes. 2010 here we come.

Right now, the average 30-year fixed-rate loan with no points or fees is around 5%. Forty years ago, in 1970, the 30-year fixed rate was around 7.25%. Since then, the rate began a steady, then sharp, rise which peaked at 18% in the early 1980s. Although the rate did decline to recent levels of 6%-7%, it took nearly 30 years to do so. This tells us that, historically, this particular rate rises much more quickly than it declines.

If you are even considering buying a first time or new home, now is the time to act. Bear in mind that the financial impact of the fixed-year mortgage rate on the cost of purchasing and paying off a home is one of the most important buying factors.

Here’s why this is true:
Every quarter-point change in the interest rate is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed mortgage. Therefore, if you put $40,000 down and borrow $200,000 to pay the price of a home, each quarter-point increase in the interest rate will cost you $12,000 over the life of the loan. By the same token, if every quarter of a point is worth $12,000 per $200,000 borrowed, then each whole interest point is worth almost $50,000.

To bring this into perspective, consider the price difference over the loan for a $240,000 home at rates greater than the current 5%. At 6%, the mortgage payoff on the same home will be approximately $50,000 greater. At 7%, the total amount swells by nearly $100,000 over the period of the loan.

If you have plans to purchase a home or if you are considering a move to a larger home, you are wise to keep a very close eye on interest rates and act before they take an upward turn. In reality, they stand to affect your mortgage and total loan cost more than the price of the home.

Criteria for the list included cites whose home prices dropped the most since last year and are trending upward. Corcoran explained that prices are expected to continue to rise due, in part, to smart city planning. “This is the time to buy in these particular places,” she says.

A sophisticated urban city with all the amenities that one would expect plus beautiful beaches helped place Sarasota at the top of the list. Citing statistics from the National Association of Realtors, Corcoran noted that with a current median home price of $175,800, Sarasota prices have dropped by a full one-third since last year. On the recovery, home prices are up 13% in just the past quarter and the timing is s right for buyers and investors.

• 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!