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We thought that you might be interested in the following US magazine extract discussing the US property market this coming year:

10 Things to Know About Real Estate in 2010

by Luke Mullins
Tuesday, December 29, 2009

Is 2010 the year to buy a house? It certainly looks that way: After a steep run-up in prices during the first half of the decade, home values have plummeted back to 2003 levels. Fixed mortgage rates are sitting near record lows. And the foreclosure epidemic–while painful for many home owners–has created some wonderful opportunities for bargain hunters. If that’s not enough, Uncle Sam is handing out thousands of dollars in tax credits to nearly all first-time buyers and the bulk of existing home owners who close a purchase by June.

But while the 2010 outlook appears inviting, there’s one key catch. “You need to have a stable job,” says Mark Zandi, the chief economist of Moody’s Economy.com. The economy is showing signs of life, but the unemployment rate is already at 10 percent and expected to go higher. And while those mortgage rates are attractive, buying a house makes sense only if you can bank on your income stream. So before you consider purchasing a home, take a hard look at your job, your company, and your industry.

That said, here are 10 things to know about real estate in 2010:

1. Prices to bottom: After more than three years of falling, real estate values have shown signs of stabilization in recent months. At the national level, home prices slid nearly 9 percent between the third quarter of 2008 and the same period this year, according to the S&P/Case-Shiller home price report. That’s a notable improvement from the second quarter’s nearly 15 percent annual drop and the first quarter’s 19 percent decline. This improvement will give way to a bottom in home prices–finally!–in 2010, but not before additional declines, Zandi says. Zandi projects home prices will hit bottom in the third quarter of 2010 after logging a peak-to-trough decline of roughly 37 percent, based on the S&P/Case-Shiller national home price index. “That means we’ve got another roughly 10 percent [decline] to go,” Zandi says.

2. Mortgage delinquencies up: Amid falling home prices and a nasty labor market, roughly 1 in every 7 mortgages was either past due or in foreclosure by the end of the third quarter–the highest delinquency rate in the 37-year history of the Mortgage Bankers Association’s National Delinquency Survey. Two factors are expected to drive delinquencies even higher next year. First, nearly 1 in 4 homeowners currently owes more on their mortgage than the property is worth, which increases their odds of default. And secondly, the national unemployment rate–which already stands at 10 percent–will peak at about 10.5 percent in the first quarter of 2010, says Patrick Newport, an economist at IHS Global Insight. Additional job losses mean more borrowers won’t be able to pay their mortgage bills. “The [delinquency] rate is going to stay up there for quite a while because the job market is going to be really weak for a while,” Newport says.

3. Foreclosures move upstream: The number of foreclosure sales will increase to about 1.9 million in 2010, according to Moody’s Economy.com. And while we’ve already seen a growing number of more expensive homes heading into foreclosure, Heather Fernandez, vice president of marketing at the real estate search engine Trulia, expects the trend to pick up steam next year. (Trulia is a U.S. News partner.) “We are poised in 2010 to see a surge of foreclosures from prime borrowers. Hundreds of billions of dollars in option [adjustable rate] mortgages are set to be recast” next year, Fernandez says. Option adjustable rate mortgages allow borrowers to make lower monthly payments for an initial period, after which the payments adjust–or “recast”–higher. For some borrowers, the new payments can be more than twice their initial payments. Combined with other factors, like the loss of a job, a recasting option adjustable rate mortgage can make borrowers more likely to default. “These are [properties] at higher price points [and] potentially in more desirable neighborhoods,” Fernandez says.

4. Mortgage rates to rise: Anyone who purchased a home in 2009 was presented with some extremely attractive mortgage rates. Rates on 30-year, fixed mortgages fell to an average of 4.88 percent in November, down sharply from 6.09 a year earlier. A key factor behind the plunge was a Federal Reserve program, first announced in November of 2008, that purchased debt and mortgage-backed securities from Fannie Mae and Freddie Mac. But the program is slated to expire at the end of the first quarter, and if private investors don’t step up, fixed mortgage rates could jump. (The Fed, of course, could always decide to extend the program.) The unwinding of this Fed program, the improving economy, and mounting concern over government deficits could push rates on 30-year, fixed mortgages to roughly 5.5 percent by mid-2010 and close to 6 percent by the end of the year, says Mike Larson of Weiss Research. “Almost all signs to me point higher,” Larson says.

5. Buyer’s market remains: With prices still falling, mortgage rates remaining historically attractive, and additional homes hitting the market in the form of foreclosures, the dynamics of the real estate market will continue to favor buyers over sellers in 2010. That means those looking to buy a home next year should not feel pressured to act impulsively. “You don’t need to have a sense of urgency, but understand that as time progresses the balance of power as we get into 2010 is going to slowly but surely shift away from [buyers],” Larson says. “It is not going to be a strong seller’s market, but it will be more evenly distributed as the year goes on.” Data from the real estate firm Zillow show that home buyers are already losing the leverage they once enjoyed. While home buyers landed a median discount of 4.6 percent off listing prices in January, the size of the gap fell to 2.7 percent by October. Expect this gap to close further as 2010 marches on.

6. Modification plan could be modified: While the Obama administration has put nearly 700,000 borrowers into temporarily restructured mortgages, it had found permanent fixes for just 31,382 struggling homeowners through November. What’s more, critics have identified two key shortcomings of the government’s $75 billion antiforeclosure plan. First, the program isn’t much help for borrowers struggling to stay in their homes as the result of a job loss. And the rickety labor market is a key factor behind rising delinquencies. At the same time, the plan does not sufficiently address the issue of negative equity–owing more on your home loan than the property is worth–which also works to increase foreclosures. “The current modification program does not address negative equity and is therefore destined to fail,” Laurie Goodman, a senior managing director at Amherst Securities Group, told a congressional committee in written testimony on December 8. “It must be amended to explicitly address this problem.” Zandi says the government may move next year to overhaul the modification program in two ways: improving troubled borrowers’ negative equity positions by writing down some of the mortgage principal, and helping to turn troubled homeowners into renters.

7. FHA lending standards may increase: While banks have jacked up lending standards in the face of mounting delinquencies, mortgages backed by the Federal Housing Administration–which come with a minimum down payment of just 3.5 percent–have remained accessible to a wide swath of borrowers. The FHA guarantees nearly 30 percent of new-home purchase mortgages today, up sharply from just 3 percent in 2006. But the rapid growth has occurred alongside an increase in mortgage delinquencies. As a result, the FHA’s reserves have dipped below congressionally mandated levels. The development has put pressure on the Obama administration to beef up its requirements for agency-backed home loans. In early December, the Department of Housing and Urban Development announced that it would make several changes to FHA mortgage requirements: raising up-front cash requirements, boosting minimum credit scores, and perhaps charging more for insurance premiums. Additional new restrictions may be in store. Taken together, the developments could work to choke off the supply of mortgage credit to borrowers who can’t get financing elsewhere.

8. Tax credit available through June: On top of lower prices and cheap mortgage rates, Uncle Sam is offering an additional incentive to get buyers into the market next year. In early November, President Obama signed a bill extending and expanding a popular tax perk for home buyers. The legislation gives qualified first-time home buyers a tax credit of up to $8,000 if they close the purchase of a primary residence by the end of June. Meanwhile, qualified current home owners are eligible for a credit of up to $6,500 when they buy their next principal residence. But while the tax perk may make a home purchase more tempting, would-be buyers should make sure they have the job security and financial wherewithal to handle the transaction before going ahead. “Don’t let [the home buyer tax credit] be the thing that drives you to act,” Larson says.

9. Markets will vary a great deal by region: The performance of the national housing market is much less important that the dynamics of your local market, and sales and pricing trends will vary a great deal from one area to the next in 2010. “There will be geographic pockets where the values will still continue to decline, and there will be geographic pockets where they increase,” said Dale Siegel, a mortgage broker and the author of The New Rules for Mortgages. That means anyone interested in buying real estate next year can’t just read the national headlines. Instead, find a good blog that covers the local housing market and consider speaking with a real estate agent with experience in the area. Check out online listings–pay close attention to pricing and inventory trends. And make sure to head out to open houses to get a firsthand feel for the market.

10. Mobile maps can help: Advances in technology have enabled would-be home buyers to increase the efficiency of their searches. For example, Zillow’s iPhone app allows home buyers to see the estimated values and listed prices of the properties they pass on the street. The app, which is free, has been downloaded more than 830,000 times. Trulia has unveiled a similar product that allows users to find nearby open houses as well. “If you are sitting in a neighborhood having brunch on a Sunday, you can very easily pull up your phone [and] walk into open houses,” says Trulia’s Fernandez.

Copyrighted, U.S.News & World Report, L.P. All rights reserved.

Best in ’10!

Bill Cowie, Director
www.britishhomesgroup.com

P.S. 2010 might be the year to take advantage of the current unprecedented “buyers market” here in the Sunshine State of Florida!

By Elaine Mills Of Dow Jones Newswires
 
With house prices in free fall in the US and the pound still strong against the dollar, canny UK investors are seeing attractive opportunities.

A raft of recent surveys has painted a bleak picture of the US property market.
 
The S&P/Case-Shiller Home Price Indices for October show negative returns from sales of existing single family homes across the US for the 10th consecutive month.

House prices in the ten largest metropolitan areas suffered a 6.7% annual drop – the biggest on record. The previous largest decline was in April 1991 when the index tracked down by 6.3%.

Last month Morgan Stanley predicted a 10% real decline in home prices in 2008. The bank says that mortgage defaults jumped to a 19-year high of 5.59% in the third quarter of 2007, and the foreclosure rate rose to a record 1.69%.

But one man’s murder is a another man’s meat, and many prospective British buyers are eyeing properties, ranging from beachfront villas to up-market city lofts, that are selling at bargain basement prices.

In Kissimmee, Florida, there is a three-bedroom 1,234 sq ft house with a heated pool and Jacuzzi up for sale on a pre-foreclosure basis at about £80,000.

With a 25% deposit, the mortgage would come to about £400 a month, says Lee Weaver from British Homes Group, a property sales and mortgage brokerage aimed at foreign buyers.

Florida with its blue-ribbon beaches and world famous attractions such as Walt Disney and Universal Studios has always been a popular destination for British holidaymakers and expatriates.

A 2007 survey by the National Association of Realtors found that Britons were the second largest group of foreigners buying US property.

UK nationals paid a median price of $335,000, which was amongst the highest, and nearly half of these purchased their homes in Florida.

Over the past four months Stirling Sotheby’s International Realty has seen a steady increase in enquires from Britons interested in acquiring property in the sunshine state.

However, this interest has not yet translated into an increase in sales. The Florida-based estate agent closed around 40 sales to UK buyers last year, which is half the number a year earlier. But it believes that 2008 will be its strongest year yet for sales to foreigners and expects some of the best deals to take place over the next six months.

BHG also says there is renewed interest from the UK. "However, problems surrounding sub-prime lending had muddied the waters, and in the fall-out not only less credit worthy individuals are being flushed out but also good borrowers," says Weaver, BHG’s director of operations.

Craig Priestley of UK-based Mortgages4You, which is licensed by the State of Florida, says it has become harder to obtain home financing since "stated income" or "self-certified" mortgages are no longer readily available and lenders now require full documentation to prove earning capability.

"The average loan-to-value has also reduced significantly from 90% to 75%, with an interest rate that ranges from 6.9% to 8%," says Priestley, the company’s US mortgage manager.  "There are 85% loan-to-value mortgages available, but these charge a diabolical interest rate of up to 12%." 

Weaver believes the slump in the property market is largely due to excess inventory as a result of a building craze prompted by demand from speculators. In 2001 there were only 2,500 homes on the Central Florida market – now there are 28,000, he says.

This concurs with Morgan Stanley’s findings, which indicate that the nationwide supply-demand mismatch is so large that builders must slash single-family housing starts by 40% from current levels to eliminate the inventory of unsold homes.

As a result the bank predicts that overall housing starts will run below one million units in each of the next two years – a level not seen since recording began in 1959.

Weaver also sees the current downturn as a necessary market correction after unsustainable property price increases over the past five years.

According to forecaster Global Insight some of the steepest price declines have occurred in the metro areas of Florida, one of the states where there has been the greatest incidence of overvaluation.

Developers are auctioning off their excess inventory to the highest bidder. Sterling Sotheby’s founder-owner, Roger Soderstrom, says sellers are willing to sell at or below current real market value in order to facilitate an immediate sale.

On January 19, the estate agent will auction 27 seaside resort homes, in up-market Naples on Florida’s west coast. An equivalent 1600 sq ft, three-bedroom apartment is valued at $393,000. A week later 30 units at Oceanwalk Condominiums on the south side of New Smyrna Beach on Florida’s east coast will be auctioned. The units, which range in size from 1350 to 2050 sq ft, are currently on sale for $250,000 to $440,000.

However, real estate is a highly localised business and there are large variations in home prices across the US. South Florida, and the Miami metropolitan area specifically, are still experiencing challenging conditions, Soderstrom says. "But areas in central Florida, such as New Smyrna Beach near Orlando, are approaching the bottom of the market.

The Naples market, which contains many multi-million dollar properties, remains soft. Both areas offer great opportunities," Soderstrom says.

Weaver expects the market to stabilise this year, and he’s not the only one. Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, says Florida’s housing sector should start recovering from mid-2008 onwards.

The National Association of Realtors is optimistic that a broad-based recovery is imminent, based on a 3.6% reduction in November’s national housing inventory and a modest firming of the Pending Home Sales Index for three consecutive months.

NAR sees an increase of 0.9% in existing home sales nationwide this year after a projected fall of 12.7% in 2007.

The association forecasts that the median price for existing homes will remain flat at $217,600 in 2008 before rising to $224,400 in 2009.

However, numerous other economists have a much more pessimistic view.

"The housing downturn will likely subtract 0.9% from growth in the next four quarters, and the housing recovery in 2009 will hardly merit the name," says Morgan Stanley’s report ‘Recession Coming’, co-authored by the bank’s chief US economist Richard Berner.

Global Insight sees home prices falling an average of 7% in 2008 and says the peak-to-trough drop in home prices will probably end up being more than 10%.

In the meantime, the pound has declined from its highs of above $2 last year. With many analysts predicting a negative longer term outlook for the currency, the window of opportunity for UK property investors to exploit a still favourable exchange rate may be shrinking.
 
Elaine Mills, Dow Jones Newswires; 020-7842-9448; elaine.mills@dowjones.com