As 2010 winds down, we’ll take a look back at the year in interest rates, cover the improvements in existing and new home sales, and take a look forward at 2011. Let’s take a look at the week in housing: Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Existing Home Sale Show Improvement The National Association of Realtors reported a continued increase in November’s Existing Home Sales report. November’s existing home sales increased 5.6% over October to a seasonally-adjusted annual rate of 4.68 million from 4.43 million. The number remains nearly 28% below tax-credit infused November 2009. The median existing home price stood at $170,600 a 0.4% increase over November 2009. Meanwhile, total inventory declined from 10.5 months in October to 9.5 months in November. Existing home sales remain low but continue to improve. The improvement in this sector of the housing market is real, showing an improvement since July’s bottom. We’re still far off from last year’s numbers (tax-credit factored in), but as long as economic conditions improve, existing home sales should at least remain stable despite rising interest rates. Interest Rates: Stabilizing The holidays seemed to have cooled the recent surge in interest rates with Freddie Mac reporting a slight decline in the 30-year fixed rate for the week of December 23rd. The 30-year fixed rate stood at 4.81% vs. 4.83% last week. The 15-year fixed rate was also down 0.2% from 4.17% to 4.15%. Here’s a quick look at rates in 2010: You can see some key points in 2010. I think most significant is the timing of 3 things; the election, Quantitative Easing 2, and the sudden positive economic news. This has lead to a dramatic rise in rates over the last 45 days. Despite these rises, mortgage purchase activity has remained relatively positive. Mortgage Purchase Activity Reverses The Mortgage Bankers Association reported a decline in both the Refinance Index and the Purchase Index this week. The Refinance continued its steep decline dropping 24.6% from the prior week. The Purchase Index dipped from the prior week causing the Market Composite Index to drop 18.6%. Refinance activity dropped as a percentage of market share from 76.7% to 72.3%. The four-week moving average for purchases is now down 1.2% after dipping the last 2 weeks. The relationship between interest rates and consumer sentiment shows that people will purchase during rising interest rates, but when sharp rises occur they reconsider. If economic conditions continue to improve and interest rates drift (vs. skyrocket), we’ll see continued purchase momentum. New Home Sale Remain Weak, Yet Improve The Commerce Department reported that sales of new single-family homes increased 5.5% in November to a seasonally-adjusted annual pace of 290,000. Further, the inventory of new homes dipped below 200,000 units for the first time in 42 years to 197,000 units (an 8.2-month supply). New home sales numbers while remaining bleak are showing some recovery. While the 8.2-month supply sounds high, it’s based on an extremely low pace of absorption. I betting a new home shortage will occur before builders are able to get the capital necessary to add substantial new inventory. Competition from foreclosures and short sales will remain stiff for the next 18-24 months, though. Final Thoughts and Look Ahead to 2011 Signs point to a holiday spending increase this year of 3.0-3.5%. I say that as I type this during Snowpocalypse 2010 here in New York City. This event could hamper the after Christmas shopping week that typically boosts retailers further into the black. Even if the retail season comes in at the low end, say 2.75%-3.0% better than 2009, the simple difference is confidence. Unemployment remains extremely high, but the end of the world didn’t happen and both people and markets will innovate in 2011. I’ve talked to a lot of investors and entities this year and two schools of thought seem to exist. One is those thinking the worst is yet to come, and the other are those seeing the housing market for what it is, severely depressed with low prices and attractive interest rates. Of who are investing in real estate, I caution you in the upcoming year to be prudent to your investments, run your numbers, factor in realistic vacancy rates when you look at deals (I suggest 1 month), and realistic maintenance costs (based on age, quality, etc). Also on the other side of many real estate deals remain people who have used the low barrier of entry real estate presents to take advantage of both the market and people. Go as far as performing background checks and public record searches on those you do business with. It could surprise you. I learned that many people who purport to be experts often are not. If you’re prudent in 2011, you’ll likely score some of the best real estate investments we’ll see in a lifetime. Don’t miss it! Cheers!