The 2010 Outlook: A Good Year For Buyers

In looking back at the housing market in 2009, the market conditions generally favored buyers due to continually falling home prices, a new first-time homebuyer tax credit in the second half of the year, a lot of homes on the market, and low interest rates.

And what’s in store for 2010? Not only should the trends of last year continue, but this will be an even better year for buyers because home prices may have finally hit bottom, the tax credit has been greatly improved (and expanded), inventory is still at a fairly high level, and interest rates are now at an all-time low. This combination has created an even greater window of opportunity for prospective buyers in the new year.

Home Prices. Although the change in home prices over the last two to three years varies widely in different areas in the country, home prices were still down nationally at the end of 2009. As we head into 2010, the so-called “bottom” in housing prices may finally be here as the pace of falling home prices has slowed nationwide. Many housing experts believe that housing prices will once again rise by the end of 2010, so now may the time to get the best deals.

The First-Time Buyer Tax Credit. With the expansion of the first-time buyer tax credit to include current homeowners, many more homebuyers will now be able to take advantage of this tax credit of up to $8,000 for first-time buyers or up to $6,500 for current homeowners. The deadline to sign a purchase agreement on a new home is April 30 and the deadline to close is June 30, so prospective homebuyers will need to act fast in order to receive this one-time credit.

Housing Inventory. Nationally, the number of homes on the market has shrunk from a high water mark last year (down from a 10.2 month supply to a seven month supply), but potential buyers still have plenty of homes to choose from. Even in areas where the number of homes on the market has not changed much over the past year, there’s still enough inventory to sustain a buyer-driven market as long as interest rates (see below) and home prices remain favorable.

Interest Rates. The historically-low interest rates may be the best reason to buy a home in 2010. Currently, the rate on a standard 30-year fixed-rate mortgage is just below the 5.0 percent mark, which is down from 6.2 percent at the end of 2008—a drop of over 1.2 percentage points. To put that difference into a dollar figure, a borrower would pay approximately $151 less in monthly payments (on a $200,000 mortgage) at today’s rates versus the rates at the end of 2008.

So, are you convinced yet that you should consider buying in 2010? ∆