The outlook for Sacramento real estate market in 2010 is uncertain. 

During the past year we have seen signs of recovery in the Sacramento real estate market with gains in sales and prices beginning to stabilize.  A good deal of this was driven by government programs like the first time home buyer’s tax credit and low interest rates caused by the Fed committing to purchase as much as $1.25 trillion in mortgage backed securities.  Both of these programs have been extended once but are scheduled to expire early in 2010.

The consensus of opinion on rates right now says they will go up by at least one full percentage point when the Fed gets out of the mortgage security business.  This could put a significant downward pressure on current Sacrament area home prices at the same time the federal tax credit program for home buyers expires.

In addition, we are clearly not out of the woods in regards to foreclosures.  The Obama push to help struggling borrowers stay in their homes through loan modifications has not been successful.  Less than 5 percent of trial loan modifications have been made permanent.  Many believe we have another wave of foreclosures approaching.

With the economy continuing to struggle, especially here in California, the number of financially strapped homeowners is growing as more people lose their job or see income decline.  Many of these home owners owe more than their homes are worth.  These homes will end up on the market as short sales or worse, bank owned properties adding to the already high levels of inventory.

Finally, the issues in the commercial real estate market are just beginning and the huge losses lenders are going to take could spur another round of bank failures and further lender consolidation.   Landlords who bet on rent and occupancy levels continuing to rise are being hurt as both have fallen.

The unknown elements that could help the Sacramento real estate market this year are increasing number of investors coming back into the market and lenders who are willing to work as hard to make loans as they did last year not to make them.

Clearly 2010 has the potential for real estate to lead an economic recovery but there is equal potential for it to drag the economy down further if government programs are not extended and lenders can’t get the loan modification programs and home lending working better.

If you have different thoughts you would like to share leave a comment or send me an email to juliej@jalone.com.  I would love to hear from you.