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Thursday, October 15, 2009

3 Keys to 2010 Housing Market

Which Way the "Move-up Market?"

I'm working on my 2010 letter to clients now, but here's a quick preview -- following are 3 factors that I think are key to next year's housing market (p.s.: if you want a copy of the letter in December, instead of February when I'll post it on this blog, send me an email at rosskaplan@edinarealty.com. If you bought or sold a house through me in the last few years, you're already on my mailing list):

One. Fate of the "move-up" market, or, "as the move-up market goes, so goes 2010 housing."

Thanks to the $8,000 tax credit for first-time home buyers -- plus cheap foreclosures dumped on the market by banks -- entry-level housing has been strong virtually all year. Perhaps too strong.

Just ask prospective Buyers and their Realtors what the choices are like below $200k in nicer areas of the Twin Cities right now.

Strength only at the bottom of the market doesn't make for a strong market, though.

So, everyone's looking for evidence that the higher rungs of the market will "join the party."

Other Shoes Dropping?

Two. Given how instrumental the $8,000 tax credit has been, there is a bit of a "waiting for the other shoe to drop" quality to the housing market at the moment.

Namely, everyone's waiting to see if demand tanks once the incentive(s) disappear. (That is, assuming that they do; there's rampant speculation that the tax credit will be extended in one form or another.)

However, assuming Nov. 30 really is it, there's some evidence that things will transition just fine: at least some Realtors are reporting that their clients are postponing their home searches till after Nov. 30.

Their logic?

Artificially-spiked demand is driving up entry-level home prices more than the $8,000 tax credit is going to save them.

Three. The other "other shoe" is a much-rumored second wave of bank foreclosures.

In particular, millions of so-called "option-ARM mortgages" (pay what you feel like -- at least for awhile) are due to re-set nationally in 2010.

The good news for the Twin Cities: these loans never became as popular here as they did in places like Southern FL, Southern CA, and Las Vegas.

The bad news: a continuing, lousy economy -- and in particular, high unemployment -- is hurting many other homeowners who got more conservative mortgages.

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