The Real Estate Monkey’s 2010 Predictions

Here I sit on the 1st day of a dawning decade and look back at my prediction I made for the 2009 year. Overall, I was in the headed in the right direction save a few missed predictions; however, the ones I missed doesn’t mean I was wrong, just my off on my timing. The year ahead shall reveal itself to be little, if at all, different from the one we just experienced. I think you’ll see more people lose their residence and fewer new home starts around the country. I am not a “doom and gloom” kind of guy, in fact I am quite the opposite; however, you can not be blind to the past if you want to thrive in the future.

So….

Prediction #1: Commercial foreclosures will be huge. The commercial foreclosure problem that we have heard about up to now is about to crash into us in a manner that even the banking experts can not fathom. One of the greatest features of real estate was the ability to leverage money to buy a greater property than one could afford. Leverage made it possible for property to control 10 dollars with 2 dollars or 20% equity. Unlike residential loans of 30 years, commercial bankers write loans for 3, 5 or 10 years so as to be locked into a 30 year note. Traditionally in the “good” days, a bank would merely rewrite (refinance) the loan when it cam due, after all the client was a good friend and paid his loan payments on time.

However, now with most banks unable, unwilling or flat-out gone all of those loans coming due this year and over the next few years will NOT be refinanced thus placing those investors, landlords and developers in a position where they have no choice but to go into foreclosure and consequently end up in a short sale position. Hundreds of millions, potentially trillions of dollars worth of defaulted loans will find their way to the open market place over the next 36 months. I believe you will see a shift in the players of commercial real estate. Older bigger names will be in trouble and newer lesser know people will take over the market when they buy the bigger names’ defaulted loans.

Prediction #2: Government assistance means nothing. The fact that the Federal Government has extended the “first time home buyer” incentive PLUS added a previous home-owner incentive for those who qualify will do absolutely nothing to stimulate the market. The extension of this deadline plus adding more who qualify should be glaring sign to anybody that the previous stimulation attempt did NOT work well enough to satisfy the “people.” Thus an extension was necessary. Couple the rising unemployment numbers and the populations’ uncertainty of all of the other world markets will be enough to freeze consumers in their spending tracks, not even a tax credit will be enough to move the market again. YET!

Prediction #3: Housing starts will fall below last years numbers. The prediction #2 will spill over to the new housing market as well. When and if people start buying homes again, they will immediately start shopping for bargains, read into this “previously owned homes that went into foreclosure.” REOs, HUDs and short sales will saturate the market and make the new home sales virtually non-existent. Society has always sought out cheaper products and more economical ways to provide for themselves. Wal-mart and Meijers should be an excellent example of this paradigm, why not houses? The traditional investor mindset will be contracted by virtually every homebuyer this year “Buy low, repair and benefit from the appreciation” when the market come back to full strength. Buying a new home at current market value and paying full price will become a thing of the past.

Prediction #4: The rental market will continue to boom. Once again my prediction from 2009 will still hold true. During this boom of foreclosures and short sales people with bad, tarnished or questionable credit will still need a place to live. Hello landlord utopia. Please don’t think that any of the Government assistant programs will save this section of the market, those programs are designed for first time home buyers and other who have lived in their home for the last five years NOT the ones that went through a foreclosure, bankruptcy or short sale. So these masses will be left with no other option than to rent from people like you and me.

Prediction #5: Residential foreclosure rates will remain steady throughout the year. If you will see the connection between these predictions you will agree that if one is true they all will be true due to the inherent dependency between them. With the banks not lending, companies laying people off their jobs and the population spending less money in the retail sector, foreclosure will continue to climb to a rate that will astound both you and me…well not me as I am the one telling you this will happen.

I apologize to those of you that have read this and feel that I am negatively forecasting a bad year. I am merely guessing at what I see is coming unless we as a society start to make some changes in our spending patterns, work habits and saving concepts. I feel that this year will start on a low note and generally pick up towards the late fall. These issues that I have predicted will be rectified by years end with 2011 becoming the year of the real estate boom, ONCE AGAIN