#10: Cash Is King

If you plan on buying a home in 2010, especially a low-priced foreclosure or short sale, be prepared for competition. Demand is high for these properties, so it’s not uncommon for bidding wars to break out over them. Real estate investors are particularly tough for regular buyers to contend with: Many investors are making all-cash offers, and banks — who are often more concerned with making a speedy sale than with getting the highest price possible — are accepting these offers over higher-priced offers where loans are involved. To stand out from the competition, make your offer as attractive as possible. That means saving up a sizable amount of cash for a down payment and making an offer that’s close to — or even above — asking price.

#9: Smoother Short Sales

In 2009, short sales, or sales in which the seller’s proceeds are less than his outstanding mortgage debt, earned a reputation as being a slow — and often unsuccessful — process. After waiting months for lender approval only to hear “no” as an answer, many buyers have left the short-sale process frustrated and no closer to owning a home. Meanwhile, the seller is still stuck with a home he can’t afford and may have to face the painful process of foreclosure. In 2010, this problematic process should become much smoother. Lenders and real estate professionals alike are working on ways to streamline the short-sale process. More real estate companies are training their agents to do these specialized sales, and lenders will be more open to processing them.

#8: Tricky Appraisal Rules

Ridiculously inflated home prices in many markets contributed to the housing crisis, motivating the federal government to pass the Home Valuation Code of Conduct (HVCC) — a set of rules that determines how appraisals should be made — in May 2009. The law aims to distance appraisers from the real estate transaction so they can provide an unbiased, objective analysis of a property’s market value.

But real estate agents argue that the system is flawed and deals are falling through because of the ever-changing, lengthy maze of rules. Long story short: With the new rules in place, appraisals now take longer, are more expensive and are often conducted by appraisers unfamiliar with the local market. The National Association of Realtors has called for a moratorium to address the shortcomings of the HVCC, but until these rules are ironed out, expect them to hinder deals in 2010.

#7: A Conflicted Construction Market

According to McGraw-Hill Construction’s Construction Outlook 2010 report, new construction is expected to climb 11 percent next year. However, in October 2009, housing starts unexpectedly plunged to the lowest level in six months, leaving many wondering if construction activity is really in recovery. The low number of housing starts in October suggests that many builders cut back on new projects while waiting to hear if the first-time homebuyer tax credit would be extended. With the credit extended, we may see housing starts climb again in 2010, but because lenders are still reluctant to finance new construction projects for builders and new condo purchases.for homebuyers, inventory will continue to be a problem.

#6: Rising Mortgage Rates

In 2009, the Federal Reserve bought up a massive amount of mortgage-backed securities, keeping mortgage rates at historic lows for much of the year. However, the Fed is scheduled to end those efforts in March 2010, meaning mortgage rates could jump as much as a full percentage point next year. If you’re considering buying a home, now would be the time to take advantage of historically low interest rates. If you’re a current homeowner thinking about refinancing, act now.

#5: Lending Standards Still Tight

According to the Federal Reserve, fewer banks tightened their lending standards in the third quarter of 2009. However, that doesn’t mean lending standards have gotten looser, either. In 2010, banks will continue to keep the subprime mortgage debacle in mind and require extensive documentation and stellar credit from borrowers. If you plan on applying for a loan in 2010, take steps now to get your finances in order and boost your credit score.

#4: Stabilizing Home Values — in Some Places

According to the Standard & Poors/Case-Shiller Home Price Index released in November 2009, U.S. home prices have improved for two quarters in a row. The national index rose 3.1 percent from the second quarter to the third quarter of 2009. Likewise, the National Association of Realtors recently reported that median home prices have risen for two consecutive quarters. NAR’s chief economist, Lawrence Yun, also predicted that home prices will grow 4 percent next year. Reports like these paint an improving national picture, but locally, many markets still have a ways to go before home values recover. According to the Case-Shiller Index, Minneapolis and San Francisco showed the greatest increases in values, while values in Cleveland, Las Vegas and Tampa continued to decline.

#3: More Foreclosures to Come

Home values may be stabilizing in some markets, but challenges still lie ahead. Between rising unemployment rates, a backlog of homes already in the foreclosure process and many adjustable rate mortgages scheduled to reset next year, more foreclosures are expected to hit the market in 2010. For a housing market that’s finally starting to show some signs of improvement, a new wave of foreclosures would be a huge setback.

In an attempt to mitigate the effect of these new foreclosures, Fannie Mae has come up with a potential solution: The mortgage giant will allow some people losing their homes to foreclosure to lease those properties back for up to a year at market rental rates. The agency hopes this program will help stabilize neighborhoods by keeping more people in their homes.

#2: More Buyers Entering the Market

In 2009, the federal government’s $8,000 tax credit for first-time homebuyers was a huge topic in the real estate world. The credit was met with mixed reactions: Some said it had little impact on the housing market, while others claimed the credit encouraged thousands of on-the-fence buyers to finally purchase their first homes. The National Association of Realtors, for example, estimates 350,000 homes nationwide were sold to first-time buyers who probably wouldn’t have bought a home if not for the credit. The group also reports that about 47 percent of all home sales in 2009 will be to first-time homebuyers, up from 41 percent in 2008.

Hoping to spur the housing market’s recovery, the federal government extended the credit — which was set to expire on Nov. 30 — and gave buyers until April 30, 2010, to secure a purchase contract. The credit was also expanded to include some existing homeowners, plus buyers with higher incomes. If the original tax credit brought more first-time buyers into the market, the expanded credit should motivate current homeowners to trade up.

#1: Still a Buyer’s Market

For homebuyers, 2010 will likely be another year of low prices and a large inventory of homes on the market. Conversely, for home sellers, 2010 will be another year of low sales prices and fierce competition from other sellers. Plus, if a wave of new foreclosures hits the market next year, sellers will still have plenty of competition from bank-owned properties at bare-bones prices.

Fortunately, home sellers have many strategies at their disposal to stand out from the crowd. Today’s homebuyers are looking for move-in ready homes, and many foreclosed homes are not in the best shape when they hit the market. Preparing your home for sale — which can include cleaning, making repairs, making upgrades and staging — can help your home stand out from the foreclosure down the street and get you a higher sales price.

Posted in: Housing Market
Tags: appraisals, buying a home, cash offers, Foreclosure, home valuation, lenders, mortgage debt, owning a home, real estate investors, real estate professionals