Well, that was fun!

Now that we have frolicked through the mud puddles of another year’s troubled housing market, let’s imagine what adventures await us in 2012!

Before looking forward let’s take a quick look back at the murky waters of 2011.

Historically low mortgage rates were maintained throughout the year, and even so, did not stimulate the housing purchase market. The robo-signing lawsuit was not resolved in 2011 leaving uncertainty for all parties. The Obama administration came out with a refinance plan that hopes to refinance underwater mortgages. Home pricesmade another leg down finalizing a double dip in home prices. Delinquent homeowners were able to stay in their homes, living free of any mortgage or rent payments. A rise in purchase cancellations took housing experts by surprise.

Will interest rates stay low? Will the purchase market pick up? Will the backlog of foreclosures finally clear – leading the way to increased home values? These are the key questions for the months ahead — and the answers to all, regretfully, is that for housing, the muck and sludge will likely keep us stuck for another year.

1. Home prices will decline 3-7%. Exactly like in 2011, the downward pressure on home prices will continue in the months ahead due to the high inventory of distressed homes entering the market. Specifically, there are over 1.7 million homes in “shadow inventory” plus an additional 6 million homes in some stage of delinquency — most of which will eventually foreclose or go through a short-sale. Even with super low mortgage interest rates we don’t have enough qualified home buyers ( excluding cash buyers) to absorb the true massive inventory.

2. Mortgage rates will stay in a low 4% to high 4% range. The Federal Reserve will continue to purchase mortgage securities instead of treasuries to keep interest rates low. I believe that the Fed will purchase over $500 billon in mortgage securities in 2012. Additionally, the European debt crisis will continue to make US treasuries appear to be safe investment throughout 2012, helping to keep rates low. If nothing else the low mortgage interest rates will help President Obama’s underwater refinance plan.

3.People will rent. As mentioned above, the foreclosure glut has allowed some people to live rent free in their homes for 12-24 months. I believe these long time lines from delinquency to foreclosure will not continue. Banks will speed up foreclosures forcing foreclosed homeowners into the rental market. Those considering a home purchase may also elect to rent instead of buy until the market stabilizes. A high rate of purchase cancellations  peaks to the reluctance of would be purchasers to pull the trigger. As the number of renters increase so will rental rates.

4. Dogs and cats will get along. The state Attorneys Generals and the banks will finally settle the robo-signing dispute. I cannot predict the final details but I do believe a deal will be struck in 2012. State AG of California, Kamala Harris, will finally realize that asking Freddie and Fannie for principal write downs in a presidential election year is a fool’s errand. It would cost US taxpayers billions of dollars to recapitalize Freddie and Fannie to purchase new mortgages and in these belt-tightening times, President Obama, House Republicans, and Senate Democrats wouldn’t let that fly in an election year.

5.Banks will become landlords. My final prediction for the 2012 housing market is that the major mortgage holders will institute a rental programs to generate some income from their shadow inventory. The banks and Freddie and Fannie will finally realize that it makes more economic sense to rent foreclosed homes instead of flooding the market with homes for sale. The US government will also get in the act — offering a tax credit to foreign buyers or even offering them a form of US citizenship if they buy a home. Many obstacles need to be overcome before programs such as these can be implemented. However, ideas that were once whispers have become murmurs and may gain traction in the coming months.

In conclusion, I predict housing will have another rough year in 2012 with not enough qualified buyers in the market and reluctance to purchase by those who are qualified. The government will continue to manipulate the market by purchasing securities to keep mortgage rates low. Rental demand will go up along with rents as more people choose or are forced to rent instead of taking on a mortgage.

Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California residents since 1988

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