Economic forecasts are sometimes as unreliable as weather forecasts. While consumers want to know the future of the financial markets and the housing market, it can be difficult for economists to provide a reliable guide.
Some financial experts anticipate a continued slow real estate market in 2011, while others are mildly optimistic about the impending economic recovery. Let's take a look at some of the most credible predictions of what to expect in 2011. (The best real estate investors all share these traits and practices. Check out 10 Habits Of Highly Effective Real Estate Investors.)
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1. Mortgage rates will stay low.
While mortgage rates have been inching up in recent weeks, economists predict they will remain in the 4.5% to 5% range for 2011 and perhaps rise above 6% in 2012. Even though these rates are increasing, they are still well below average mortgage rates a few years ago. As consumer confidence rises and the economy improves, low mortgage interest rates will add to the affordability of homes.
2. Lenders may loosen standards.
Lawrence Yun, chief economist for the National Association of Realtors (NAR), says overly tight restrictions on loan approvals have hurt the housing market. NAR is lobbying lenders to loosen their standards and the expectation is that as the economy improves, credit will become more accessible.
3. Tax cut extension could lead to faster recovery.
Some economists are revising their predictions about economic growth and increased employment as the government extends tax cuts and unemployment insurance benefits.
4. Americans still want to be homeowners.
A recent Fannie Mae survey revealed that more than half of Americans still believe in the overall value of buying a home, and that 66% believe buying a home is a safe investment.
5. Homebuyers are looking for long-term ownership, not a fast profit.
Homebuyers today are serious about why they want to buy a home, so while they are slower to choose a home, they are also more likely to actually buy rather than just keep looking. (Real estate can provide diversification and a hedge against inflation. Find out why it works. Read Can Real Estate Stabilize Your Portfolio?)
6. Home prices are expected to dip again.
While this may not sound like an indicator of a recovering market to homeowners, lower prices may induce more renters to become homeowners.
7. Builders will start building again.
The last few years have been slow for homebuilders, yet they still own land that is waiting for development. As the economy begins to recover, builders will start building again. Not only will this excite buyers with pent-up demand for a brand-new home, but it will also add jobs in each market.
8. Inventory of all types will increase.
Sellers who have been waiting for the market to improve may not be willing to wait much longer, so buyers will find more existing homes ready for purchase. Competition from foreclosures and new homes will add to the pressure to keep prices low, which should be a good deal for buyers.
9. Homes will keep shrinking.
Home are getting smaller, making them more affordable and easier to maintain. Buyers who have been afraid to step into a large home may be more willing to become homeowners of a more manageable property. (Find out how a smaller home can reduce expenses in Downsize Your Home To Downsize Expenses.)
10. There will be more opportunities available for cash buyers and investors.
Real estate investors and others with the funds available for an all-cash purchase have been an increasingly larger pool of buyers in 2010, and this trend is expected to continue in 2011. These buyers can quickly snap up inventory without waiting for a loan approval, thus increasing the number of home sales in individual markets.
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The Bottom Line
Time will tell what happens to the real estate market in general in 2011, but one thing to keep in mind when making your decision about buying a home, selling a home or investing in real estate is that this is one part of the economy that is extremely local. Not only do housing markets vary from state to state, but also from neighborhood to neighborhood. Following the national real estate news can be valuable, but keeping up on local market conditions can be even more important.
For the latest financial news, see Water Cooler Finance: FBI Insider-Trading Bust.