Why Prices Will Soften in the 1st Half of 2011

Demand
1.) Last year, The Home Buyers Tax Credit was both extended to the end of April and expanded to include move-up buyers. This increased demand to some degree. However, most now believe that the tax credit simply dragged demand forward from later in the year. What took place was a surge in sales prior to the deadline and then a dramatic fall off after April.
This year, there is no such tax credit in place to drive demand. It also seems that there is no political will to revisit a homebuyersā tax credit at this time.
2.) Last year, the Fedās purchase of mortgage-backed-securities was extended to the end of March. That increased demand by guaranteeing low interest rates through the first quarter. And economic conditions forced interest rates to new lows even after the Fed backed off the purchases. There was a full six months of historically low rates to bolster demand.
This year, interest rates are rising as we enter January and are projected to continue their upward climb. The National Association of Realtors, the Mortgage Bankersā Assoc and PMI are all calling for rates to continue to rise through the first half of 2011.
Supply
1.) Last year, the administration was taking the initial steps in implementing a comprehensive loan modification program. This program limited the number of foreclosures coming to the market at discounted prices. It also delayed the entrance to the market of many more distressed properties. According to the OCC and OTS Mortgage Metrics Report, we enter 2011 with ānewly initiated home retention actionsā down 32.4% from the same time last year.
This year, the administration is touting their new āshort saleā program. This will increase the number of distressed properties hitting the market.
2.) Last year, state and local governments were declaring foreclosure moratoriums thereby limiting the number of foreclosures entering their markets. There doesnāt seem to be the same political will to revisit moratoriums in 2011.
This year, though the robo-signing mess will initially delay the entrance of some distressed properties to the market, most believe there will be a wave of discounted properties coming in the first quarter.
CNBC reported on economist Nouriel Roubiniās predictions on this issue:
āThere has been an effective moratorium on foreclosure,ā said Roubini.
And the beginning of the end of that moratorium means more housing supply is about to become available on the market.
āThe shadow inventory of not-yet-foreclosed homesādue to the moratoriumāwill surge in the next year,ā Roubini says.
Bottom Line
Without the programs that encouraged buyers last year, we see a steady but slow growth in demand. Without a strong commitment to limiting distressed properties, we believe that there will be a wave of discounted real estate entering the market in the form of āshort salesā and foreclosures. A limited increase in demand and a surge in supply will equate to lower home prices as we move into the year.
For More Information on the Colorado Springs Real Estate Market, Contact Mike MacGuire, your Colorado Springs Real Estate Expert for information on Purchasing a Home for Sale in Colorado Springs or Selling a Home in Colorado Springs.
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