These days it’s hard to know what is happening in the housing market. Is it rising or falling? There are plenty of people out there trying to predict what is going to happen. The problem is that they are looking nationwide or citywide. Investors need to know what is happening in their specific farm area, though. Here are the top ways to determine whether your market go up or down in 2010.

There are a number of factors that drive real estate prices up or down in any given area. Each market reacts to its own set of conditions, and even different neighborhoods and types of properties will react according to its own set of circumstances.

You want to look at homes that are within a 1 mile radius from the center of your farm area. You also should look at the at homes that are within 10% of the median square footage of the homes you would like to buy and sell.

Home prices are for the most part determined by the months of housing inventory available. Price changes tend to lag behind changes in inventory by about 6-10 months. So if housing inventory increases, you will see a decrease in prices about 6-10 months later. If the inventory decreases, prices will then rise about 6-10 months later. Real estate investors are able to use short sales to offer deeply discounted prices when they sell houses before the rest of the homes in an area catch up.

As a general rule, prices will fall if there are 8 or more months of inventory available. They will rise if there are 2-3 months available. This is a solid rule to use for your market in 2010.

If your area has a high demand for starter homes that was not quenched by the first round of the First Time Homebuyer credit, there may be a continuation of the feeding frenzy experienced in some markets. With the extension to all buyers, a larger supply of starter homes may be available in some markets, spurring sales and boosting prices. There are indications that the tax credit is just a minor factor in the economic recovery picture, though. Only 6 percent of homeowners who bought homes for the first time this past fall did so because of the tax credit.

Gen Y’ers (1977-1994) are in their prime home-buying years. It will take a relatively small increase in demand to spark building in those parts of the country that generate jobs for this age group and have remained relatively stable during the recession.

The cost of ownership is another factor that directly drives up the price of homes. In 2010, the U.S. Treasury will play a very important role in determining whether the market will rise or fall. There was been little incentive shown by the Federal Reserve to raise interest rates in 2009, but it might be different in 2010. The Fed might experience pressure to raise interest rates in order to attract more buyers of U.S. debt. Even just a small increase in interest rates could drive potential buyers out of the market.

Higher property taxes or income taxes at the state and local level could drive potential buyers out of the market. Local and state governments might succumb to pressure to raise these rates in order to balance their budgets for 2011.

Last is the impact foreclosures will have in your specific market. There will probably be spikes in foreclosures occurring in markets that relied heavily on Option ARM mortgages to sell homes from 2004-2007. These rates will reset soon as interest rates increase, causing foreclosures to spike. Those communities that are already drowning in unemployment will also face another rash of foreclosures.

These are some of the factors that will have an impact on home prices in your local market in 2010. Make sure to apply the ones that fit, because each market and micro-market will act differently this year.

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