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Predictions: 9 For '09 In Real Estate

1. Foreclosure Relief

Foreclosures will continue to rise in 2009 unless the mortgage industry and the government stop inventing new acronyms for old modification plans that we know don’t work. The decision has to be made: do we bail out borrowers in a big way or do we let the market completely correct and the foreclosures work their way through the system?

2. Existing Home Prices

Existing home prices in 2009 will depend entirely on point No. 1; that is, until foreclosures start going down instead of up, home prices will continue going down, instead of up.

3. Existing Home Sales

Sales of existing homes will bounce back in 2009, thanks to pent-up demand and bargain basement pricing. We’re already seeing sales rise in California and Nevada, with price drops there in the neighborhood of 45 percent from their peaks. The caveat, as always, is consumer sentiment, since trouble in the economy and potential job losses could negate everything I just wrote.

4. New Home Sales

A foreclosed home for sale.
David J. Phillip
A foreclosed home for sale.

We’re going to need more incentive here, and I’m not just talking granite in the kitchen. New home sales are in deep trouble. Inventories are coming down ever so slightly, but the competition from foreclosures that are barely a few years old is weighing heavy. Builders have dropped prices significantly, but I think it’s going to take more, maybe something creative, like a builder donating one home to a homeless family for every home it sells. Promotions that go beyond the norm. Just a thought.

5. Housing Starts

Don’t go there, seriously. Don’t build in 2009.

6. Big Builders

Someone’s gotta' give. We keep hearing about how all the big builders are hoarding cash, steeling themselves for the winter and positioning themselves for the turnaround, but if you look at my answer to No. 5, then you have to believe one of these big guys is going to leave the marketplace. They’re already about half the size they were just a few years ago.

7. Commercial Real Estate

This one’s dicey because as the commercial market is now deteriorating, as vacancy rates are rising and as asking rents are moderating and in some places declining, gaps in cash flows—that is how much money the property is producing against what the debt service is—is widening. That’s making it harder and harder for many commercial real estate owners to make the mortgage payments—which gets me to No. 8.

8. CMBS Market

Fear is driving the CMBS market at the end of 2008 and most think that will accelerate into 2009. The big fear used to be that commercial borrowers would have trouble refinancing their loans in 2009-2010 when they come due, thanks to the credit crunch, but that fear is now on the back burner, behind the current fear of valuations on these securities. Folks aren’t buying them, and the spreads have widened by something around 300 percent (no joke). I’d watch this one carefully, but remember that the CMBS market is nowhere near as large as the residential MBS market. So, dare I say, chill?

9. Should I Buy a House in 2009?

AP

Yes, in fact, buy one for me. Unfortunately, during the housing boom, I chose to use a traditional mortgage product at a higher rate than all those fancy schmancy products that could have afforded me that really swank big tudor on the avenue. You know, the one with the massive chef’s kitchen/family room, the master suite with its own wet-bar and the back yard that could actually contain my son’s Big Papi-esque hitting capacity. I really wanted that house, but for some ridiculous reason I bought one at half the size and half the price, which leaves me still making my mortgage payments every month, unlike everyone else. I’m just SO uncool.

Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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