2010 WILL Be Better Than 2009

“It is very hard to make predictions. Especially about the future” –Yogi Berra, former Yankees Hall of Fame Catcher

2009 ended much stronger than it started. Unit sales were up in virtually every market in the country and while prices are still trending down, inventory shrinkage in the entry level points to price firming. Inventories in the mid- to upper-price brackets show that prices have a ways to adjust (that means downward).

The tax credit walloped housing the fourth quarter with November 2009 unit sales up 42.9% over November 2008. December won’t be quite as robust but will still be better than December 2009. We expect the same in January and February with small increases in unit sales over those months last year. Then will come the second explosion with the expiration of tax credit too. Sales in the April to June period should be substantially above the same months of 2009.

The second half of 2010 should be quieter in terms of month-over-month increases in unit sales. Depends too on where your business is. If your business is in foreclosures and entry level housing 2010 could be your best year ever. If you are focused on the upper price brackets 2010 will another tough year.

Housing sales are a function of demand. The growth of households, of family incomes and employment are the most important factors. Don’t get fooled by thinking that Americans are going to defy these basics and go back to buying homes as if they were flipping stocks. People need a place to live, its that simple. While in the short term households will make decisions based on tax credits or great values in home prices and mortgage rates, only a change in need will drive demand. And it turns out that the demand is fairly static--about 5% of all households a year will purchase a home.

We are bullish on housing in 2010 not because we believe it will be hugely better than 2009 but because the country continues to grow and people will need a place to live. A certain percentage are going to buy a home because their needs changed. Once all the tax credits have expired and the lowest interest rates you will ever see pass, the underlying demand will still be there and families will go back to buying homes.

For those who made it this far, take heart. It only gets better from now on.