Top 10 Real Estate Predictions for 2010

With some subtle signs of recovery in the housing market, the real estate industry is due to bounce back — but more challenges could lie ahead for buyers and sellers alike.

HGTV’s FrontDoor.com identifies the top 10 must-know real estate trends for the coming year: No. 10: Cash is king. All-cash offers will become even more popular for foreclosures and short sales, as banks would rather get less money than deal with the hassles of loan transactions.

No. 9: Smoother short sales. As lenders and real estate professionals become more accustomed to short sales (sales in which the proceeds are less than the outstanding debt), the process will become more streamlined and successful for all parties involved.

No. 8: Tricky appraisal rules. Due to the government’s Home Valuation Code of Conduct passed in May, property appraisals will be more expensive and take longer, sometimes hindering (or breaking) real estate deals. No. 7: A conflicted construction market. Though lenders are still reluctant to finance new housing projects for builders, there’s a chance of double-digit increases in new construction next year (according to the McGraw-Hill Construction Outlook Report).

No. 6: Rising mortgage rates. The Fed’s effort to keep mortgage rates at historic lows is scheduled to end in March. Homebuyers should act now to capitalize on the lowest interest rates in years.

No. 5: Lending standards still tight. With the subprime mortgage debacle in recent memory, lenders will continue to require stellar credit and thorough documentation from borrowers.

No. 4: Some stabilizing home values. Nationally, the outlook for home values is good, with a rise in home prices during the last two quarters of 2009. Locally, however, many markets are a long way from full recovery.

No. 3: More foreclosures to come. Though more homes will go into foreclosure in 2010, some homeowners will be able to lease back their property at market rental rates for a year’s time, allowing more people to stay in their homes longer.

No. 2: More buyers entering the market. The government’s first-time homebuyer tax credit was extended to April 30 and to a broader range of buyers, which should bring even more buying activity to bear.

No. 1: Still a buyer’s market. As 2010 looks to be another year of low home prices and a robust inventory of homes for sale, it will still be the best opportunity for buyers to cash in on some great real estate deals.

Christopher Brown, who heads the foreclosure defense practice of Begos, Horgan & Brown, in Westport, Conn., says the pace of foreclosures will not slow down in 2010.

“The first wave of foreclosures was for those who took out subprime loans. These posed the highest risk of default and so it was natural that these loans would start the foreclosure wave. Unfortunately, I expect that wave to intensify as more and more loans from the next riskiest loan category, alt-A, fall into default,” said Mr. Brown.

Mr. Brown expects problems in the loan registration system to slow or even halt some foreclosure proceedings. “More courts will take a dim view of Mortgage Electronic Registration Systems Inc., which is the system that’s supposed to keep track of mortgage filings,” he said.

“In 2009, the Supreme Court of Kansas and other courts observed that the MERS system can create insurmountable problems for a party seeking to foreclose. More court decisions like these will follow in 2010 as the spotlight becomes more and more focused with MERS.”

More foreclosures will be defeated because the wrong party tried to take the house, he added. Only the owner of a loan has the right to foreclosure on a mortgage in most jurisdictions.

“There is, however, a distinction in the law between owning the loan and having a right to enforce the note. And that distinction can make the difference between whether a foreclosure action is proper or not.”

Mr. Brown believes it will be harder to avoid foreclosure in 2010. “If a borrower is seeking a mortgage modification she probably will be talking to one department in the bank. If she is seeking a short sale, she probably will be talking to a different department,” said Mr. Brown.

“Foreclosures are handled by yet another department in the bank. The problem is that the different departments don’t talk to each other and what one department is doing does not affect the other. That means that, for example, borrowers could be working on a modification with the loss mitigation department only to find that the foreclosure department has had them serviced with a foreclosure summons. A pending modification application does not prevent the borrowers from losing their house in foreclosure.”

In general, Mr. Brown foresees that foreclosures will continue at the current pace in 2010 but that borrowers will have more success in keeping the foreclosure wolves at bay.