10 Real Estate Predictions for 2011

Although the Houston, Texas real estate market is different from most, these 10 real estate predictions for 2011 from About.com are worth mentioning.

Recovery is the Buzz Word

We've been watching the national real estate market mostly fall for the past 5 years and, quite frankly, consumers are desperate for relief. Relief is in sight; it's just not around the corner. Prices may fall a little and climb a little, but the market will stay flat.

Still, real estate professionals will cling to any shred of hope, including that of recovery, digging in that bag of optimism, looking for proof that the market is on the rebound. Recovery is way off in the distance, on the horizon. If you squint, you can see it, but recovery is out of our reach in 2011. We need jobs. And there ain't no stinkin' jobs.

Real Estate Brokerages will Merge

Small real estate brokerages are struggling to compete with larger brokerages. Larger brokerages are streamlining and cutting back. If a brokerage had 15 offices in 2010, we might see that number reduced by a third in 2011, perhaps to 10.

Sales have been depressed, and agents have been taking second jobs or leaving the business all together. We had a big influx of agents from 2000 to 2007 and many of those agents don't have decades of trial and error to fall back on as the veteran, experienced agents enjoy. But even so, many of the long-term mom-and-pop real estate offices are hurting, and they could be forced to merge with a larger company to stay afloat. National franchises may appear more appealing to real estate brokers than going it alone, without support.

Sales of Entry Level Homes Dominate

In some parts of the country, real estate prices have been cut in half over the last 5 years, resulting in more sales in low price points that haven't seen the light of day for a decade. First-time home buyers have more affordable choices than ever.

Move-up buyers will most likely stay put. Until the job market recovers, insecurity and worries about the future will dampen any enthusiasm to sell and move up. The driving force in the market will be home buyers who have never owned a home before. These buyers will negotiate hard as nails because they aren't going to make the mistakes of their predecessors, you can count on that.

More Luxury Homes Sell As Short Sales

Few homeowners are immune to the market downturn. Eventually, even the wealthy homeowners grow tired of watching their retirement accounts shrink and weary of supplementing their loss of income by depleting investments and drawing upon savings.

Those who own luxury homes generally made a substantial down payment. Their holding power is a little longer than those who financed 100% of the price of a less expensive home, but 2011 could be the year luxury homeowners say enough is enough as well.

Strategic short sales will rise in 2011.

Mortgage Money Will Be Cheap

Interest rates will remain at historic lows and money will be abundantly available to those who can afford to borrow it. The problem is lending requirements have become so strict that fewer borrowers fit today's bank guidelines.

To get a loan, a borrower's FICO score needs to be above 620 for FHA and 720 for conventional. Banks order FICO scores from 3 credit reporting agencies and use the middle score.

To stimulate the real estate market, the Feds are likely to keep interest rates in check throughout 2011.

Mortgage Interest Deductions Remain

Congress has been known to pass goofy laws that make no sense to the average working stiff, but even a Republican majority is unlikely to strip the mortgage interest deduction from homeowners. A less aggressive plan such as scaling back the mortgage interest deduction would promote public and private outrage as well. Mortgage interest write-offs are as American as apple pie.

Besides, our lobbying groups for such organizations as the National Association of REALTORS® and the Mortgage Bankers Association would rather stab their eyeballs with a pitchfork than lose this battle. Repealing or cutting the mortgage interest deduction would further devastate the housing market, and it's just not gonna happen.

More Loan Modifications will Fail

Loan modifications are a dismal failure. They were set up to fail from the beginning. Any system that does not reduce the principal balance and eliminate second mortgages is doomed. A loan modification is like putting a gun to the homeowner's head and not pulling the trigger for a while. The debt is still there.

Ask any underwater homeowner how they feel about their bank. They hate their banks. Everybody hates their banks, especially real estate agents who try to pick up the pieces from a failed loan modification and turn around a short sale before the homeowners lose the roof over their heads. Loan modifications are simply an attempt by the government and big banks to put a Band-Aid® on the problem.

Cash Investors will Rule

Any investor with access to hard-money loans and many investors with cash on hand are jumping into real estate. They are cautious investors, however, and for the most part are steering away from upper-end homes. They are attracted to rock-bottom prices and finagle even further by paying cash for a home.

And why not? Where else could they put their money and get a decent return? Certainly not in money markets or CDs. The stock market is where they lost a big chunk of change so some are reluctant to take a chance on stocks. As long as they can rehab fixers and rent them out, cash investors will be attracted to the bottom of the real estate market and knock out competition from first-time home buyers.

Mortgage Brokers will Fold

Congress passed the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 a couple of years ago. It affected certain mortgage brokers as of July 31, 2010, but by January 1, 2011, all mortgage brokers are subjected to its guidelines. This could dramatically limit the number of mortgage brokers operating throughout the country.

Apart from the four-figure fees to comply, mortgage brokers must pass a state and national test, take 20 hours of education, complete a criminal background check and a credit check. Critics complain that bankers aren't subject to the same law. All the same, mortgage brokers are hit by the downturn as well and many can't afford to or won't comply.

It's probably a good thing for consumers to have access to the Nationwide Mortgage Licensing System and Registry. If we had this system in place before the mortgage meltdown, the fallout from that travesty might have been reduced.

Short Sale Lawsuits Begin

The best for last, but it could just as easily been listed first. What's worse than losing your home as a short sale? How about being sued by your bank for a deficiency judgment?

In California, for example, we have a four-year statute, which will expire in 2011 for short sales completed between 2006 and 2007. Just because the bank hasn't called a short sale seller yet, asking how the seller plans to repay that forgiven debt, doesn't mean the seller is free from liability. Agents who assured their sellers that there was nothing to worry about will find their butts in court, too.

Real estate agents are not supposed to give legal and tax advice. So, if they can't be sued for non-disclosure, maybe they will be sued for impersonating a lawyer or an accountant. Or perhaps they'll get sued for incompetence. Lots of real estate agents suddenly became a short sale expert overnight in such hard-hit states as California, Arizona, Nevada and Florida. Those states are probably where the first lawsuits will be filed.