As per the data revealed by National Association of Realtors (NAR), there a sharp rise in the sales of new homes in July and August 2009. However, the sales in month of August weren’t as high as expected which was quite disappointing. So, I ignored chasing the sales trend and didn’t look at the real estate market for some months.

Later, in December 2009, the November data was released which again proved disappointing. There was a 16% fall in the sales of houses than October. This the first time the sales figure dropped since past 9 months.

Experts had forecasted a 2% fall. When they were asked about the steep fall in sales, “People took a Breather,” is what David Crowe, chief economist in National Association of Home Builders, concluded.

Another chief economist from NAR, Lawrence Yun blamed the alteration in end-date of first time home buyers tax credit. The tax benefit was initially dated to end on 1st Dec, but was later protracted till June.

I agree with him because the buyers who initially decided to utilize the tax credit signed the contract immediately and tried to wind up the home mortgage before the end of November 2009.

Actually, we cannot disgrace the sales figures of November because the numbers are much better (15% up) than those in same month last year. So, people bought new houses but not as much as in the months of July, August, and September. They wanted to get the $8000 benefit ASAP.

If demand for new houses falls, understandably, there is a cut in prices. And when there is a price fall, the demand rises (logic again). However, subsequent to the recent price fall, there was hardly a surge in the demand trend.

Since May 2009, there has been 3% depreciation in real estate prices. Most of the experts and forecasters are quite optimistic about the market. They predict a substantial price fall in 2010. According to Fiserv Lending Solution, a reputed financial firm, we will witness around 11.3% fall in the real estate prices in 2010.

That’s pretty good new, and let us all try to be as optimistic as Fiserv. However, what are the reasons behind these predictions? Why are experts predicting a fall?

More Foreclosures this year

Moody’s expects many foreclosures this year due to the limitation and errors in recent mortgage modification programs. We have seen many experimental modifications and many permanent ones are re-defaulting at higher rater.

Hence, due to these foreclosures, there would be 8% decrease in house prices. Most of these foreclosures would be seen in the states of Arizona, Florida, Nevada, and California.

Next, many people bought new homes with adjustable mortgage rates (AMR). In coming months, these rates are definitely going to increase landing the homeowners in trouble.

Lastly, there are people who just want to walk away. Many people buy houses as a form of investment, but when they see a huge fall in the real estate rates, they file for bankruptcy.

Raising Interest Rates

At present, the interest rates prevailing in the market is extremely low. However, experts believe this privilege won’t last many months. Pat Newport, analyst at HIS Global Research, says that you will soon have to pay interest more than 6% for a 30-year mortgage as the government intends to withdraw the support given to real estate market.

It’s always wise to stay informed; hence I use Quicken Loans to stay abreast with the recent real estate trends. It has a simple layout for beginners and professionals. I like it because it provides local results, while others offer a broader view.

Probably in March, we will witness a halt in purchase of government backed securities by Fed, which will be another factor causing price rise.

End of First-time homebuyer’s tax credit – Fall in Price

End in tax credit will definitely affect the number of houses purchased every month. It will also affect the price trends.

If this tax credit helps to boost the sales figures as per predicted, not many people will buy new homes after the tax benefit ends in June. People intending to buy houses this year will strive hard to do it before June to get the benefit. Hence, the period after June will see a steep fall in the sales figure. Subsequently, the fall in demand would possibly lead to fall in house rates.

Tough Times

Due to the above mentioned reasons, prices will probably dip. However, experts are not so sure about its effect on the economy. Will it recover or will it sink down further?

But we can be sure of thing: Do not treat your house as an investment. It would be a risky gamble that could affect your credit score, kid’s education, and other financial areas.