Sunday, November 8, 2009


On January 10th of this year, I sent my 2009 market forecast to about 100 past and current clients. I also blogged about my predictions for 2009 in a series of posts that you can find in this space by clicking on the JANUARY tab in the lower right corner of this page.

Ten months later, it’s time to see how I did. Here are the primary predictions I made in January, along with what happened as 2009 unfolded:

Prediction #1 – Prices below $250,000 to stabilize and recover in most areas

Result: Spot on. In fact, especially below $200,000, many areas saw appreciation between 5 and 10% over 2008 as first-time buyers poured into the market, attracted by lower prices, low rates and the $8,000 first-time buyer tax credit. 2009 was a great year to buy an entry level home.

Prediction #2 – From $250,000 to $325,000, values will stagnate. Above $325,000, they will fall.

Result: Again, pretty accurate. While the market below $300,000 generally held up, above $300,000 we simply did not have enough consumer confidence to support the inventory of homes available in the market. Above $325,000, values fell almost everywhere.

Prediction #3 – Above $600,000, losses in value will be severe.

Result: Lack of affordable financing, economic concerns and corporate downsizing destroyed the move-up market in 2009, with many homes high end properties absorbing six-figure losses in value. Anyone looking at purchasing a higher-end home needs to be extra-cautious right now, because the conditions that drove values up from 2000-2005 (easy financing, low rates, consumer confidence) are gone for the foreseeable future, replaced by tight credit, higher rates (for jumbo money) and systemic fear of job loss and downsizing.

Prediction #4 – Interest rates will spend more time in the 6’s than in the 5’s.

Result: Wrong-O! I saw the “trillion dollar money bomb”, otherwise known as the stimulus package, unleashing a series of unintended consequences that would drive rates higher throughout the year. The Federal Reserve responded to the threat of higher rates by agreeing to purchase over $1 trillion in mortgages at discounted rates, which held rates in the low 5s for most of the year. But trust me, sooner or later rates will boomerang into the 6’s, at which point the refi party will be over and home buyers who don’t take action today will see their purchase power erode.

Prediction #5 – Foreclosures in the Denver Metro area, which fell by 7% in 2008, will fall by an additional 12 to 15% in 2009.

Result: Through the first seven months of the year, foreclosure filings in the seven-county Denver metro area had fallen 6.4% year-to-date versus 2008. Keep in mind that the 7% decline last year and the 6.4% decline so far this year puts us nearly 15% below our 2007 numbers, so clearly the flow has slowed. This has been especially evident to first-time buyers, who have been frustrated during the second half of this year with extremely limited inventory and intense competition (see my post from August 20 on “The Best Days to Buy a Foreclosure” for more information about this subject). But ultimately I thought we would see a greater effort from banks to process loan modifications and short sales to stem the tide of foreclosures. Guess I underestimated the callousness and stupidity of banks.

So what’s coming in 2010? I have some specific ideas which I will share in the space next month, but to preview… expect more of the same. 2010 is going to be a lot like 2009, but perhaps with some improvement in the $250,000 - $400,000 market during the first half of the year, spurred by the new “move-up” tax credit signed into law by the President on Friday.

But here are some basic tenants to keep in mind: 1) houses are no longer ATM machines; 2) don’t buy a home if you don’t plan to live in it for a while; and 3) “buying it right” is the key to making a good long-term investment.

Private home ownership has always been at the core of the “American Dream”. But it’s never been more important to do your homework up front, and it’s never been more important to hire a professional who understands the market to protect your interests in these tumultuous times.