I don't see "starter" home prices changing much in the coming year. I expect the worst of the housing market is past us and the huge price drops are a thing of the past. Foreclosures will likely continue being a large part of our market until the job market recovers. The number of short sales will also continue to rise as more homeowners are clamoring to save their credit by avoiding foreclosure. The government may step in and force banks to improve the short sale process.

Mortgage rates will probably begin to rise again in March when the government puts an end to mortgage-backed securities. That should cause rates to go from the current 5% mark to around 6%. Refinancing will drastically slow down once that happens because the rates being offered will no longer be a substantial improvement over most homeowners’ existing rates. In addition, lenders will likely require much better credit scores to for potential homeowners to qualify for a home loan. The magic number for a FICO score will probably approach 700 in most cases.

The high-end home markets will probably see less activity as homeowners stay put waiting for the market to recover because mortgage rates will no longer be low enough to offset their loss. We'll finally begin to see new construction popping up due to the decreased "spec" inventory we've seen in the last two quarters of 2009, though most of those will be starter homes which were largely cleared out due to the $8000 tax credit.

Lastly, the market will again slightly downturn as the tax credits expire. We won't notice it at first because the summer months are typically the best in the real estate industry but fall and winter will again tail off and we'll likely see around 75% of the market activity we've seen in the closing months of 2009.