To put it mildly, the real estate market during the last decade was a rollercoaster.
This year, though, seemed to be more of a low, but according to the most recent Realtors Confidence Index (RCI) by the National Association of Realtors (NAR), positive expectations are increasing.

As a key indicator of housing market strength based on a monthly survey of more than 50,000 Realtors, the results of the RCI reflect respondents’ confidence levels in the current market and their future expectations. Participants respond to questions, and their answers are quantified and used to create the RCI. Responses are assigned a weight of zero, 50, or 100, with a response of “strong” receiving 100. The rating included in the index represents the average score for each question.

According to the report, sales expectations of real estate practitioners for residential properties for the next six months increased compared to a month ago for all types of housing. Up from a rating of 38.7, single-family homes came in at 41.1; town-houses posted a 23.0, up from 21.8; and condos increased to 18.2 from 16.7. As for home prices, 60.1 percent of respondents expect home prices to increase 0 to 5.0 percent in the next year, but 30.4 percent believe home prices will fall over that same time period.

According to Lawrence Yun, NAR chief economist, home sales are expected to get a boost by roughly 15 percent next year. Existing-home sales are forecast to post 5.7 million units in 2010, up from 5 million units in 2009. In addition, Yun said new home sales will increase to 555,000, a jump from 400,000 in 2009.

By the middle of next year, Yun projects inventory will fall to a six to seven months’ supply, which means there are likely to be modest home price gains. Roughly speaking, a 2 to 5 percent price gain is likely in many parts of the country next year. Yun said home prices have been overcorrecting, leading to sizable destruction in middle-class housing-related wealth, but as home values increase, home prices will be prevented from overcorrecting even further.

In his projection for 2010, Yun said the commercial real estate market will also benefit. However, the benefits in this market will, as usual, will come after some lag time. As the economy becomes more fully entrenched in “recovery” mode, Yun projects employment will start to turn around. Rising employment and recovering consumer wealth will mean an eventual increase in demand for office, retail, and industrial space, Yun said.

“As always, there are some caveats,” Yun said. “Despite the very positive news on the housing stimulus, there remain significant risks to the forecast.”

According to Yun, mortgage rates will rise from their rock-bottom point as we move into the next year, and the Federal Reserve will slowly start the unwinding of its mortgage-backed security purchases. In addition, Yun said consumer prices will be watched for any sign of accelerating inflation, and as a result, bond investors will be cautious about lending at such low rates. Up from the current rate of 5.0 percent, the 30-year fixed rate is likely to reach 5.7 percent by the end of 2010, Yun said.
Another worry of Yun’s is the labor market. He said the rising unemployment rate is a painful reminder that not all is well. The unemployment rate reached 10.2 percent in October, its highest level since 1983, and Yun said the climb is not over yet. He expects unemployment to hit 10.4 percent before reversing. While job cuts are continuing, Yun said there is a silver lining because the pace of job cuts is less sharp now that in the first half of 2009. Job creation is expected to turn positive by spring, and Yun said unemployment will likely be at 9.5 percent by November 2010.

“Despite the risks of rising mortgage rates and rising unemployment, the housing outlook has significantly improved,” Yun said. “As the fear of falling home values disappears, that one key negative factor that has held back homes sales will no longer be in play. Happier days are ahead.”