Every year at this time, I gaze into the two crystal balls on my desk and make some predictions regarding the future of real estate in the Washington metropolitan area, predictions which often touch national trends.

2001 was an exceptional year. It started with an unbelievable real estate boom in my area. Single family homes, condominiums and cooperatives were selling at incredibly high prices. Buyers were literally outbidding each other, and getting themselves into a frenzy, just to be the successful contract purchaser. And interest rates dropped down to such a low level that everyone had to refinance their existing mortgage.

However, things started to slow down, even before the tragic events of September 11th. Although mortgage interest rates were still very low, consumer confidence in the economy started to slip. Eventually, even the most optimistic economists had to admit that by November, we were in a recession. Although the statistics are not yet available, it appears that Christmas shopping this year was very poor, thus continuing to hurt our chances of a quick recovery.

There were a number of factors which created the 2000-2001 boom in real estate. The stock market was up, and the 1997 Taxpayer Relief Act allowed many homeowners to sell their house without having to pay anything to the IRS by way of capital gains tax. And where I live, in Washington, DC, the "up to $5,000 tax credit" enacted by Congress for first-time homebuyers in the District of Columbia (as well as the fact that Washington was about to have a new Mayor) contributed greatly to the increased interest in local real estate.

How will 2002 fare? Currently, it looks like we are about at the bottom of the recession, and struggling to get out of it. The best analysis seems to suggest that perhaps by April, we will start seeing signs that the worst is over.

First let's look at mortgage interest rates. I seriously doubt that they will go much lower. While they will continue to hover around 7 percent -- which is still a comfortable rate for most homebuyers -- I believe we have seen the end of the under 6.75 rate. This means that refinancing -- while still attractive -- will start to slow down. And the seller's market which prevailed for all of 2000 and most of 2001, is over. It will not yet become a buyer's market, but perhaps a balanced market is the best way to describe real estate during the coming year.

Condominium and cooperative apartment sales will slow down. The American consumer is disillusioned with community association life. I receive numerous letters each month from disgruntled owners, complaining about their neighbors, their boards of directors and their restrictive covenants. We have all hear numerous stories about the excesses taken by boards of directors in such areas as covenant enforcement, rules and regulations and assessment collections.

Community association leaders -- such as the Community Association Institute -- have long attempted to develop a positive campaign to correct this misapprehension of community association life. Additionally, more and more community associations are starting to recognize the impact of their activities, and are beginning to mandate better procedures, including such things as due process hearings, mandatory dispute resolution, and open meetings and open elections.

Community associations finally understand that unless they begin to address the serious problem of the number of investor owners within their community, buyers will be unable to obtain mortgage loans from the secondary mortgage market and owners will be unable to refinance.

The secondary mortgage market (notably Fannie Mae and Freddie Mac) have imposed restrictions on the number of investor units that will be permitted to exist within an association; if the association exceeds those guidelines, mortgage financing will be difficult to obtain.

Next, predatory lending practices will receive strong attention from both the legislative and executive branches of government at all levels. Too many people are being preyed upon by unscrupulous lenders -- lenders whose prime objective is to milk the unsuspecting homeowner to such an extent that their house has to be sold at a foreclosure sale -- and then the process starts all over again with the new buyer.

Such unconscionable practices as illegal flipping, multiple refinancings, home improvement scams and excessively high settlement and mortgage broker fees will be the focus of attention this coming year, and positive, workable legislation to stop such practices will be enacted throughout this country.

The issue of the "buyer-broker" will continue to be of concern among real estate professionals. Many consumers are questioning the necessity -- and the legality -- of hiring a real estate broker as a "buyer-broker" when that broker is going to be paid by the seller, and only if a sale takes place. How can a buyer-broker truly represent a buyer under these circumstances?

One issue that is still on my "wish list" relates to the massive amount of paperwork needed to buy or refinance a single family house.

When I first started in the real estate business many years ago, the borrower signed only two or three legal documents -- a promissory note, a deed of trust (mortgage) and a settlement statement. Now, in addition to the mortgage documents, lenders require such miscellaneous documents as: name affidavit, clerical error affidavit, affidavit of debts and liens, disclosure statements, flood hazard insurance statement, power of attorney, etc.. While relief in this area is desperately needed, and while it appears that high level officials at the Department of Housing and Urban Development (HUD) are aware of this issue, I do not believe that the mortgage industry will rise to the call this year.

In 2002, people will continue to buy and sell, and homeowners will continue to refinance. Clearly, home ownership remains a better option than renting. But the road to recovery will be slow, and the future is cloudy.

For more articles by Benny Kass, please press here.