Underwater Mortgages & Guilt Double Standards

Corporations that walk away from underwater mortgages are called "smart" while individuals who do the same thing on a much smaller scale are called deadbeats. Why is that again?

Tishman Speyer Properties walks away from 11,232 Manhattan apartments because it can't pay its mortgage. That's good business. Rick Gilson, a college custodial supervisor in South Dakota, wants to walk away from the mortgage on his mobile home. If he does, he'll be a deadbeat.

Those two borrowers face the same financial dilemma: Their mortgages far exceed the values of their properties. Yet one gets to walk away without guilt, while the other can't.

Gilson is too scared to dump the mortgage on his mobile home. He owes $31,973, but the home is only worth about $14,000. "I have 12 years of money put into this property that I will never get out," said the 50-year-old Gilson, from Rapid City, S.D. "But I am still paying because this is what I have been told to do. That's what I think is right."

Until now, the focus of the real estate crisis has been on individuals. One in four U.S. homeowners, or nearly 11 million Americans, are underwater on their mortgages. In some parts of the country -- Florida, Nevada, Michigan, California and Arizona -- the share tops 40 percent.

Some experts say it makes sense for some people to walk away if they're deeply underwater, even if doing so could wreck their credit score for seven years. It may not be worth it to keep paying a mortgage when they can find comparable rental housing for considerably less money.

The argument against walkaways is that they will wreak economic havoc if a lot of people do it. Banks will have more bad loans on their books. They'll make fewer loans. Home prices will plunge more.

The rules are different, though, for the walkaway of all walkaways.

That title is reserved for what happened to one of New York's trophy properties, the 56-building Stuyvesant Town and Peter Cooper Village complex. Spanning 80 acres on Manhattan's east side, it's the largest single-owned residential area in the city. Its red brick buildings, built by Metropolitan Life in the 1940s for World War II veterans, are still a haven for the city's middle class.

Commercial real-estate firm Tishman and its partner, investment firm BlackRock, paid $5.4 billion to buy the property from MetLife in late 2006 -- right at the market's peak. They hoped to make money by converting rent-regulated apartments into luxury condos and raising rents.

Then the housing crash hit. The value now: $1.8 billion.  And you thought you overpaid for your house. "They made assumptions that things would grow to the moon, and things certainly did not," said Len Blum, a managing partner at investment bank Westwood Capital.

Tishman said last week that it was turning the property back over to creditors to avoid filing for bankruptcy protection. In recent weeks, Tishman failed to restructure $4.4 billion in debt, and couldn't find another buyer, according to a statement from the company.  Tishman exits the deal with a ding to its reputation, but it will be fine. It still has Rockefeller Center and the Chrysler Center in New York, and dozens of properties in cities worldwide. The company has about $33 billion in assets.  Residential homeowners wouldn't get off so easy.  For most underwater homeowners, the thought of walking away from their commitment is impossible to fathom. After all, it's part of the culture. Pay your bills. Uphold contracts.

University of Arizona law professor Brent White, who has written about mortgage walkaways, says societal pressures often trump what's actually legal. He thinks individual borrowers believe they are obliged to repay their loans even when it isn't in their financial interest.  "The problem is that we have a structure whereby corporations can walk away with impunity but individuals can't," White said.

Gilson reads what's happening 1,700 miles away in Manhattan and gets angry.  His mobile home started depreciating the minute he moved in 12 years ago, much as a car loses value as soon as you drive it out of the dealer's lot.  Three years ago, he bought a new home that he lives in with his wife. Since he can't sell the mobile home for anything near what he paid for it, he rents it out in order to make the $300.36 mortgage payment every month.  "I get so stressed over this," Gilson said. "It's like the elephant in the room and there is nothing you can do about it."  Gilson is frustrated that real-estate tycoons can default on a $4.4 billion mortgage, but he's not supposed to do the same on his $31,000 loan.

How can you blame him?

The Real Estate Market ain't what she used to be

At the beginning of the 21st century, most homebuyers had never viewed a home online; the three top home sale marketing methods were yard signs, newspaper ads and open houses; and nearly nine out of 10 buyers financed their purchase with a fixed-rate, 30-year mortgage.

In 1999, only 37 percent of buyers used the Internet in their home search. Today, 90 percent of buyers search online. Websites have evolved to give today’s buyers what they want – not just property listings, but multiple photos, online videos, mapping features and comprehensive neighborhood information.

Median home values over the past decade have increased more than 25 percent, from $137,600 in November 1999 to $172,600 in November 2009 (the most recent existing-home data available). Fewer people buy detached, single-family homes – 82 percent in 1999 compared to 78 percent in 2009 – but more people buy homes in suburban neighborhoods – 46 percent in 1999 compared to 54 percent today.

Buyers themselves have also changed, and married buyers make up a smaller proportion. In 1999, married couples bought 68 percent of all homes; in 2009, only 60 percent were married. Single men purchased 10 percent of all homes last year, compared to only 7 percent 10 years ago. Single women now represent 21 percent, up from 15 percent in 1999.

Some things haven’t changed. The median age for homebuyers last year was 39, just as it was in 1999. Neighborhood quality, affordability and convenience to work and school still rank as top priorities for buyers; and 80 percent of buyers still believe that owning a home is an investment in their future.

HEAVY 2009 RECORD FORECLOSURES

A total of 2,824,674 U.S. properties received a foreclosure filing in 2009, a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007.

HUD Waiving the Anti-Flipping Rule

FHA mortgage insurance will now be allowed on foreclosed properties that are quickly resold or “flipped.” The policy shift is a welcomed change. The Anti-Flipping Rule adopted in 2003 as 24 CFR 203.37a(b)(2) was designed to address predatory lending practices where a Lender, Seller and/or Appraiser might perpetrate fraud on an unwitting homebuyer by reselling a property far in excess of the fair market value or with substantial overcharges tied to the new mortgage. While the Rule may have helped on that front, it unnecessarily targeted foreclosures which are commonly flipped… either by the bank or an investor.

Typically, in today’s foreclosure environment an investor will purchase a foreclosed home at the Trustee’s Sale only when the property can be bought at a discount from the fair market value. The home is then rehabbed as necessary and resold at fair market value as quickly as possible to avoid holding costs and risks incident to ownership, often the resale occurs well within 90 days. Importantly, the notion of a fraudulent sale in excess of fair market value to an unwitting homebuyer does not arise nor is it a threat. Instead, the reality in today’s market is that an investor will not entertain a purchase offer from a buyer who requires FHA financing which is bad for the buyer, bad for the seller and bad for the community seeking to stabilize property values at full fair market. Kudos to HUD for finally recognizing this negative influence in the housing market and doing something about it.

The waiver will take effect on February 1, 2010 for one year unless otherwise extended or withdrawn. Also, note that the waiver comes with the following limitations:

The transaction must be at arms-length

If the sales price is 20% or more above the acquisition cost the lender must meet conditions concerning appraisal and property inspection

The waiver is limited to forward mortgages, no Home Equity Conversion Mortgages

Interestingly, HUD acknowledged that eliminating the 90-day resale restriction will give the FHA greater opportunity to dispose of it’s single family REO “in a way that maximizes return to the FHA mortgage insurance fund” (in other words at the highest price). So HUD saw that the Anti-Flipping Rule not only hurt buyers, sellers and our communities, but hurt the FHA too.


The waiver is good in that it helps investors quickly resell foreclosed properties at full fair market price which will also help occupy homes and stabilize values. The waiver is good in that it makes available to buyers FHA-insured mortgage financing on a growing portion of the available homes for sale. The waiver is good in that it helps mitigate potential FHA mortgage insurance fund loses by increasing what buyers may be willing to pay for distressed properties. Bottom line, it’s all good.

Key West is a Song

Natl December home sales down nearly 17 percent

Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.

Buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.

December's sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the National Association of Realtors said today. Sales had been expected to fall by about 10 percent, according to economists surveyed by Thomson Reuters.

The report "places a large question mark over whether the recovery can be sustained when the extended tax credit expires," wrote Paul Dales, U.S. economist with Capital Economics.

The median sales price was $178,300, up 1.5 percent from a year earlier and the first yearly gain since August 2007. However, some of that increase could be due to a drop-off in purchases from first-time buyers who tend to buy less expensive homes.

Sales are now up 21 percent from the bottom a year ago, but down 25 percent from the peak more than four years ago.

The big question hanging over the housing market this spring is whether a tentative recovery will stumble after the government pulls back support. The Federal Reserve's $1.25 trillion program to push down mortgage rates is scheduled to expire at the end of March -- a month before the newly extended tax credit runs out.

Last year, first-time buyers were the main driver of the housing market, but their presence is on the decline. They accounted for 43 percent of purchases in December, down from about half in November, the Realtors group said.

The inventory of unsold homes on the market fell about 7 percent to 3.3 million. That's a 7.2 month supply at the current sales pace, close to a healthy level of about 6 months.

Total sales for 2009 closed out the year at 5.16 million, up about 5 percent from a year earlier. That was the first annual sales gain since 2005. But prices fell dramatically last year, declining 12.4 percent to a median of $173,500, the largest decline since the Great Depression.

Though the results missed Wall Street's expectations, the Realtors' group says there are signs the market is finally stabilizing.

"There is some sustainable momentum building in the housing market right now," said Lawrence Yun, the group's chief economist. However, he cautioned that the recovery will depend on whether the economy starts adding jobs in the second half of the year.

Many experts project home prices, which started to rise last summer, will fall again over the winter. That's because foreclosures make up a larger proportion of sales during the winter months, when fewer sellers choose to put their homes on the market.

Despite fears that home prices are starting to fall again, some analysts still believe the worst is over.

"We do not believe it is fair to consider this a double dip in the housing market," Michelle Meyer, an economist with Barclays Capital, wrote last week. "The recovery is still under way, but hitting some bumps in the road.

Strategic Defaults

Nearly a year after the Obama administration unveiled its ambitious housing rescue program, foreclosure tallies continue to break records. Foreclosure filings were reported on more than 2.8 million properties in 2009, up 21 percent from the previous year and 120 percent from 2007. With nearly 10 percent of mortgages now delinquent--which is also a new record--even more homeowners appear headed for foreclosure this year. A massive supply of delinquent loans continues to loom over the housing market.

Homeowners have found themselves in foreclosure for a number of reasons. Some purchased properties they could never really afford. Others lost their jobs--the national unemployment rate remains in the double digits--and had no way to make mortgage payments. But as the crisis rumbles forward, an additional driver of home foreclosures has become clear: Many borrowers have the means to keep paying the mortgage but are simply walking away because they believe it's best for their finances.

The number of so called "strategic defaults" more than doubled, to 588,000, from 2007 to 2008, according to a study by Experian and Oliver Wyman. A separate 2009 survey found that more than a quarter of all existing defaults were strategic. Meanwhile, a growing number of academics are touting the financial benefits of walking away. "Homeowners should be walking away in droves," Brent T. White, a University of Arizona law school professor, said in a recent paper. "The financial costs of foreclosure, while not insignificant, are minimal compared to the financial benefit of strategic default."

The case for strategically defaulting is linked to negative equity, or owing more on your home than it is worth. With home prices at the national level having dropped roughly 30 percent from their 2006 peaks--and a great deal more in certain bubble markets--a considerable chunk of property owners are now in this fix. Nearly 1 in 4 borrowers currently have negative equity, according to First American CoreLogic. And rather than continuing to make payments on an investment that's now worth significantly less than what they paid for it, many borrowers are throwing in the towel.

White uses the following example to demonstrate how many borrowers are better off defaulting: A young professional couple with two children pays $585,000 for a three-bedroom, Salinas, Calif.-home in January 2006. At $4,300, monthly payments on their no-money-down, 30-year fixed mortgage with an interest rate of 6.5 percent represent a tad less than 31 percent of their gross monthly income. Toss in taxes, student loans, health care, food, and other essentials, and finances quickly get tight.

After the historic housing bust, their home is now worth $187,000, but they still owe $560,000. Other homes in their neighborhood, of course, have plummeted in value as well. And if the couple was to purchase a similar, nearby house listed at $179,000, their monthly payments would be less than $1,200. That's a huge savings over their current $4,300 monthly mortgage bill. But since a foreclosure on their credit report is likely to prevent them from buying a home in the near-term, they may have to rent. And about $1,000 a month gets them a comparable rental property in their neighborhood.

"Assuming they intend to stay in their home ten years, [the homeowners] would save approximately $340,000 by walking away, including a monthly savings of at least $1,700 on rent verses mortgage payments, even after factoring in the mortgage interest tax reduction," White writes. "If they stay in their home, on the other hand, it will take [the homeowners] over 60 years just to recover their equity--assuming, of course, that they live that long."

The argument against strategically defaulting is much more straightforward: You promised to repay the loan when you took out the mortgage, and it's your responsibility to do everything possible to honor that commitment. Avoiding the guilt and shame that can accompany a foreclosure is one of the top reasons struggling homeowners don't strategically default, White writes. On top of that, a foreclosure significantly damages one's credit--making it difficult, if not impossible, to obtain a mortgage for years afterward.

But in a recent white paper, Alex Edmans, an assistant professor of finance at The Wharton School of the University of Pennsylvania, argues that many homeowners are ignoring these consequences to do what they believe is in their best financial interest. "Defaulting on their loan is a rational decision: While they forfeit their home, they rid themselves of a mortgage liability of even greater value," Edmans writes. "The source of the problem is the homeowner's balance sheet: since he has negative equity in his home, it is not worth keeping it by paying the mortgage."

The issue of negative equity triggering strategic defaults represents a nasty headache for the Obama administration. The $75 billion mortgage housing rescue the administration unveiled last February is designed to keep people in their homes by reducing their monthly mortgage payments down to more manageable levels. The plan does not, however, require lenders or servicers to reduce borrowers' mortgage principal--meaning underwater borrowers still have this incentive to walk away from their home loan.

Laurie Goodman, a senior managing director at Amherst Securities Group, considers negative equity to be the housing market's greatest challenge and believes current housing rescue efforts are insufficient. "The current modification program does not address negative equity, and is therefore destined to fail," Goodman said in written testimony before a Congressional committee in December. "It must be amended to explicitly address this problem."

Although Uncle Sam has reduced mortgage payments for more than 850,000 borrowers so far--for a median savings of more than $500--the government will remain under pressure to take more aggressive action as long as the foreclosure epidemic keeps churning. Mark Zandi, the chief economist at Moody's Economy.com, believes the government may take steps to tackle the issue of negative equity head-on this year by incorporating principal write downs--which reduce a borrower's negative equity position--into the housing rescue program.

Economy Moving Sideways at Best

click on graph for larger size

This graph shows that the National Association of Home Builder's Housing Market Index (HMI) and single family starts mostly move in the same direction.

Residential investment (RI) is one of the best leading indicators for the economy, and the best indicators for RI are the NAHB HMI, housing starts, and new home sales. And these indicators are moving sideways (at best).

Note: The largest components of residential investment are new home construction, and home improvement. This includes brokers' commissions and some minor categories.

2009 Record Foreclosures & More in 2010

A record 2.8 million households were threatened with foreclosure last year, and that number is expected to rise this year as more unemployed and cash-strapped homeowners fall behind on their mortgages. The number of households that received a foreclosure-related notice rose 21 percent from 2008, RealtyTrac Inc. reported Thursday. One in 45 homes were sent a filing, which includes default notices, scheduled foreclosure auctions and bank repossessions. In December, more than 349,000 households, or one in 366 homes, were hit with a foreclosure-related notice. That represents a 14 percent spike from November and a 15 percent jump from December 2008.

Banks repossessed more than 92,000 homes, up 19 percent from November. That increase was likely due to lenders working to clear their books at the end of the year.

Stemming the tide of foreclosures is an important step for the real estate market and the economy to recover. Because foreclosures are usually sold at heavy discounts they can lower the value of surrounding properties. Cities lose property tax dollars from empty foreclosures and declining home values, straining local economies. Home prices have stabilized in some cities, but are still down 30 percent nationally from mid-2006.

The foreclosure crisis isn’t letting up. Between 3 and 3.5 million homes are expected to enter some phase of foreclosure this year.  High foreclosures forced the federal government and several states to come up with plans to prevent or delay foreclosures to help troubled borrowers.

One plan intended to help homeowners is the Obama administration’s loan modification program known as Making Home Affordable. Lenders participating in the program have offered trial loan modifications to 760,000 eligible borrowers since it was launched in March. A loan modification changes the terms of the loan, such as lowering the interest rate, to make the monthly payments more affordable.  As of November, just 31,000 of them had been made permanent. Nearly the same number had dropped out of the program or found to be ineligible. The Treasury Department will release updated figures Friday.

Economic issues, such as unemployment or reduced income, are expected to be the main catalysts for foreclosures this year. Homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.  The Mortgage Bankers Association on Wednesday recommended changes to the government’s program to account for borrowers who’ve lost their jobs. The program, for example, should include a suspension of payments as the first step for borrowers with a temporary loss of income.  The government also should refrain from “endless incremental program changes,” the trade association said.  Since April 2009, there have been nine instances where new program requirements were released, and more than 90 clarifications for new or revised forms, reporting changes and policies. The changes forced mortgage companies to implement new procedures and retrain employees, taking away time that could be spent helping borrowers.

The same three states that led the nation in foreclosure rate in December also posted the highest rates for the entire year: Nevada, Arizona and Florida. More than 10 percent of Nevada housing units received at least one foreclosure filing in 2009, with Florida and Arizona following with about 6 percent each.  The other states ranked in the top 10 for the year were California, Utah, Idaho, Georgia, Michigan, Illinois and Colorado.

Miami, Key West Shatter Cold Temp Records

Ok,ok that's not really an iceberg floating off Key West, but it sure feels that cold to some here.

Monday morning will go down in the record books for one of the coldest days in South Florida's history.

In Miami, the temperature dropped to 36 degrees, breaking the old record for the day of 37 degrees set back in 1927. Across South Florida actual temperatures dropped into the upper 20s inland in some locations, including Kendall, with the 'feels like' temperatures in the teens.

But that wasn't the only record broken.

In Key West, the temperature at the airport dropped to 42 degrees shattering the old record of 48 degrees set back in 1970. This was also the second coldest temperature ever recorded in Key West going back to 1873 when weather records for the island were first kept. The all time record low in Key West is 41 degrees which has only occurred twice; on January 13th, 1981 and January 12th, 1886.

Temperatures will slowly but surely increase the next few days. Tuesday and Wednesday forecasting highs in the 60s and finally enjoying highs back to normal in the 70s by Thursday and Friday with a better chance of showers by the end of the week. Saturday will be warmer with highs in the 80s.

2009-2010 Real Estate Market as seen by Zillow

Apartment Vacancy Rate Highest on Record

Rents Plunge - Never before have we observed rental properties in so much distress, both on the space and pricing side.

The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.

In the fourth quarter, the U.S. apartment vacancy rate rose 0.10 percentage points from the prior quarter, and 1.3 percentage points for the year. At 8 percent, it was the highest national vacancy rate Reis has recorded in its 30 years of tracking the sector.

In the fourth quarter, U.S. asking rents fell by an average of 0.7 percent to $1,026 per square foot, the largest single-quarter decline since 1999. For 2009 asking rents fell 2.3 percent, also the largest decline in 30 years. Effective rent fell 0.7 percent in the quarter to $964 per square foot. The 3 percent drop for the year was more than three times the deterioration in 2002.

Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a record 11.1% in Q3 2009. This also fits with the NMHC apartment market survey.

A record high vacancy rate and a record plunge in rents! Anyone surprised?

And more rent declines are coming, from Nick Timiraos at the WSJ: U.S. Now a Renters' Market
Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months.

This is one of the unintended consequences of government policy: rising rental vacancy rates, falling rents, more losses for CMBS investors and local and regional banks, more bank failures, downward pressure on CPI (rent is largest component of CPI) ... and eventually more downward pressure on house prices as the massive government support for house prices slows (because of the price-to-rent ratio).

Foreclosure Mediation Ordered!

Florida homeowners facing foreclosure may soon get one last chance to negotiate with lenders trying to take back their homes.

The Florida Supreme Court issued an administrative order last week that requires a third-party mediation program with all new foreclosure lawsuits involving primary residences.  The goal of the order, written by Chief Justice Peggy Quince, is to help handle the state’s glut of foreclosures. An estimated 456,000 foreclosure cases statewide are clogging the court system, she said. Florida has the third-highest mortgage delinquency rate in the nation, according to the order. “The crisis continues unabated,” Quince wrote. 

The order backs a recommendation made in August by the Supreme Court’s residential task force. The court asked the task force to study the problem and offer guidance.  “I’m pleased the court recognized the need of what the task force asked for,” said Alan Bookman, a task force member and former Florida Bar president. “This is going to force lenders and borrowers to talk to each other. They may not be able to work something out, but it’s a start.”

Lenders have spoken out against mandatory mediation and said it would cause even more delays. Alex Sanchez, president and CEO of the Florida Bankers Association, told the Tribune in August that lenders already are in constant touch with borrowers and file foreclosure cases as a last resort.   Sanchez could not be reached for comment Monday.

The mediation order will be executed through the chief judges of Florida’s 20 judicial circuits. Bookman said he expects the program to be in place by mid-February.  The program requires sending all cases involving primary residences to mediation unless the plaintiff and borrower have already done so or both parties agree to opt out.  The cost of mediation is not to exceed $750, according to the order. Lenders would pay the fee initially, though they could recoup some costs if mediation fails and a foreclosure lawsuit is filed in court.  It’s unclear on what date the mediation requirement kicks in, but it does not apply to cases already in the pipeline, Bookman said.



The order likely will apply to cases filed after the chief judges sign orders for each circuit, Bookman said. However, the chief judges could assign a different date. “They could make it affective for cases filed this week, when the order was signed,” Bookman said.

Most areas of Florida continue to see a rise in foreclosure filings.  However, the Tampa-St. Petersburg-Clearwater metro area recently saw overall foreclosure filings slow. The November number dropped 9 percent year-over-year and 1 percent from the previous month, according to RealtyTrac, a California company that tracks mortgage activity.  Even so, the area has been rocked by foreclosures. The category of filings known as new foreclosure lawsuits increased in November, from 31,380 the month before to 32,276.

Thanks for the Memories Mr. Bush

It was, according to a wide range of data, a lost decade for American workers. ...

There has been zero net job creation since December 1999. ... Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 ... And the net worth of American households ... has also declined when adjusted for inflation ...

10 Things to Know About Real Estate in 2010

Is 2010 the year to buy a house? It certainly looks that way: After a steep run-up in prices during the first half of the decade, home values have plummeted back to 2003 levels. Fixed mortgage rates are sitting near record lows. And the foreclosure epidemic--while painful for many home owners--has created some wonderful opportunities for bargain hunters. If that's not enough, Uncle Sam is handing out thousands of dollars in tax credits to nearly all first-time buyers and the bulk of existing home owners who close a purchase by June.

But while the 2010 outlook appears inviting, there's one key catch. "You need to have a stable job," says Mark Zandi, the chief economist of Moody's Economy.com. The economy is showing signs of life, but the unemployment rate is already at 10 percent and expected to go higher. And while those mortgage rates are attractive, buying a house makes sense only if you can bank on your income stream. So before you consider purchasing a home, take a hard look at your job, your company, and your industry.

That said, here are 10 things to know about real estate in 2010:

1. Prices to bottom: After more than three years of falling, real estate values have shown signs of stabilization in recent months. At the national level, home prices slid nearly 9 percent between the third quarter of 2008 and the same period this year, according to the S&P/Case-Shiller home price report. That's a notable improvement from the second quarter's nearly 15 percent annual drop and the first quarter's 19 percent decline. This improvement will give way to a bottom in home prices--finally!--in 2010, but not before additional declines, Zandi says. Zandi projects home prices will hit bottom in the third quarter of 2010 after logging a peak-to-trough decline of roughly 37 percent, based on the S&P/Case-Shiller national home price index. "That means we've got another roughly 10 percent [decline] to go," Zandi says.

2. Mortgage delinquencies up: Amid falling home prices and a nasty labor market, roughly 1 in every 7 mortgages was either past due or in foreclosure by the end of the third quarter--the highest delinquency rate in the 37-year history of the Mortgage Bankers Association's National Delinquency Survey. Two factors are expected to drive delinquencies even higher next year. First, nearly 1 in 4 homeowners currently owes more on their mortgage than the property is worth, which increases their odds of default. And secondly, the national unemployment rate--which already stands at 10 percent--will peak at about 10.5 percent in the first quarter of 2010, says Patrick Newport, an economist at IHS Global Insight. Additional job losses mean more borrowers won't be able to pay their mortgage bills. "The [delinquency] rate is going to stay up there for quite a while because the job market is going to be really weak for a while," Newport says.

3. Foreclosures move upstream: The number of foreclosure sales will increase to about 1.9 million in 2010, according to Moody's Economy.com. And while we've already seen a growing number of more expensive homes heading into foreclosure, Heather Fernandez, vice president of marketing at the real estate search engine Trulia, expects the trend to pick up steam next year. (Trulia is a U.S. News partner.) "We are poised in 2010 to see a surge of foreclosures from prime borrowers. Hundreds of billions of dollars in option [adjustable rate] mortgages are set to be recast" next year, Fernandez says. Option adjustable rate mortgages allow borrowers to make lower monthly payments for an initial period, after which the payments adjust--or "recast"--higher. For some borrowers, the new payments can be more than twice their initial payments. Combined with other factors, like the loss of a job, a recasting option adjustable rate mortgage can make borrowers more likely to default. "These are [properties] at higher price points [and] potentially in more desirable neighborhoods," Fernandez says.

4. Mortgage rates to rise: Anyone who purchased a home in 2009 was presented with some extremely attractive mortgage rates. Rates on 30-year, fixed mortgages fell to an average of 4.88 percent in November, down sharply from 6.09 a year earlier. A key factor behind the plunge was a Federal Reserve program, first announced in November of 2008, that purchased debt and mortgage-backed securities from Fannie Mae and Freddie Mac. But the program is slated to expire at the end of the first quarter, and if private investors don't step up, fixed mortgage rates could jump. (The Fed, of course, could always decide to extend the program.) The unwinding of this Fed program, the improving economy, and mounting concern over government deficits could push rates on 30-year, fixed mortgages to roughly 5.5 percent by mid-2010 and close to 6 percent by the end of the year, says Mike Larson of Weiss Research. "Almost all signs to me point higher," Larson says.

5. Buyer's market remains: With prices still falling, mortgage rates remaining historically attractive, and additional homes hitting the market in the form of foreclosures, the dynamics of the real estate market will continue to favor buyers over sellers in 2010. That means those looking to buy a home next year should not feel pressured to act impulsively. "You don't need to have a sense of urgency, but understand that as time progresses the balance of power as we get into 2010 is going to slowly but surely shift away from [buyers]," Larson says. "It is not going to be a strong seller's market, but it will be more evenly distributed as the year goes on." Data from the real estate firm Zillow show that home buyers are already losing the leverage they once enjoyed. While home buyers landed a median discount of 4.6 percent off listing prices in January, the size of the gap fell to 2.7 percent by October. Expect this gap to close further as 2010 marches on.

6. Modification plan could be modified: While the Obama administration has put nearly 700,000 borrowers into temporarily restructured mortgages, it had found permanent fixes for just 31,382 struggling homeowners through November. What's more, critics have identified two key shortcomings of the government's $75 billion antiforeclosure plan. First, the program isn't much help for borrowers struggling to stay in their homes as the result of a job loss. And the rickety labor market is a key factor behind rising delinquencies. At the same time, the plan does not sufficiently address the issue of negative equity--owing more on your home loan than the property is worth--which also works to increase foreclosures. "The current modification program does not address negative equity and is therefore destined to fail," Laurie Goodman, a senior managing director at Amherst Securities Group, told a congressional committee in written testimony on December 8. "It must be amended to explicitly address this problem." Zandi says the government may move next year to overhaul the modification program in two ways: improving troubled borrowers' negative equity positions by writing down some of the mortgage principal, and helping to turn troubled homeowners into renters.

7. FHA lending standards may increase: While banks have jacked up lending standards in the face of mounting delinquencies, mortgages backed by the Federal Housing Administration--which come with a minimum down payment of just 3.5 percent--have remained accessible to a wide swath of borrowers. The FHA guarantees nearly 30 percent of new-home purchase mortgages today, up sharply from just 3 percent in 2006. But the rapid growth has occurred alongside an increase in mortgage delinquencies. As a result, the FHA's reserves have dipped below congressionally mandated levels. The development has put pressure on the Obama administration to beef up its requirements for agency-backed home loans. In early December, the Department of Housing and Urban Development announced that it would make several changes to FHA mortgage requirements: raising up-front cash requirements, boosting minimum credit scores, and perhaps charging more for insurance premiums. Additional new restrictions may be in store. Taken together, the developments could work to choke off the supply of mortgage credit to borrowers who can't get financing elsewhere.

8. Tax credit available through June: On top of lower prices and cheap mortgage rates, Uncle Sam is offering an additional incentive to get buyers into the market next year. In early November, President Obama signed a bill extending and expanding a popular tax perk for home buyers. The legislation gives qualified first-time home buyers a tax credit of up to $8,000 if they close the purchase of a primary residence by the end of June. Meanwhile, qualified current home owners are eligible for a credit of up to $6,500 when they buy their next principal residence. But while the tax perk may make a home purchase more tempting, would-be buyers should make sure they have the job security and financial wherewithal to handle the transaction before going ahead. "Don't let [the home buyer tax credit] be the thing that drives you to act," Larson says.

9. Markets will vary a great deal by region: The performance of the national housing market is much less important that the dynamics of your local market, and sales and pricing trends will vary a great deal from one area to the next in 2010. "There will be geographic pockets where the values will still continue to decline, and there will be geographic pockets where they increase," said Dale Siegel, a mortgage broker and the author of The New Rules for Mortgages. That means anyone interested in buying real estate next year can't just read the national headlines. Instead, find a good blog that covers the local housing market and consider speaking with a real estate agent with experience in the area. Check out online listings--pay close attention to pricing and inventory trends. And make sure to head out to open houses to get a firsthand feel for the market.

10. Mobile maps can help: Advances in technology have enabled would-be home buyers to increase the efficiency of their searches. For example, Zillow's iPhone app allows home buyers to see the estimated values and listed prices of the properties they pass on the street. The app, which is free, has been downloaded more than 830,000 times. Trulia has unveiled a similar product that allows users to find nearby open houses as well. "If you are sitting in a neighborhood having brunch on a Sunday, you can very easily pull up your phone [and] walk into open houses," says Trulia's Fernandez.