The majority of America’s potential homebuyers and sellers — 68 percent — believe that the real estate market and property values will recover in the next year or two, according to a survey released today by Prudential Real Estate and Relocation Services, Inc., a Prudential Financial, Inc. [NYSE:PRU] company. This exceeds the 47 percent of Americans who expected house prices would rise in a similar survey conducted in April 2010, underscoring a more bullish outlook for the real estate market today. In addition, 86 percent of Americans believe real estate is a good investment despite the market volatility of the past few years. The Prudential Real Estate Outlook Survey of 1,253 Americans between the ages of 25-64 in the market for buying a home was conducted Jan. 20-27, 2011.

The survey reveals that six in 10 respondents are more interested in buying real estate (58%) and are optimistic about buying given the momentum of the economic recovery (59%). It also shows that although the price of many Americans’ homes declined during the recession, 89 percent recognize they can also buy a new house at a lower price.

“This survey clearly demonstrates that Americans continue to be optimistic about the real estate market and believe that home prices will rise,” said James Mallozzi, chief executive officer of Prudential Real Estate and Relocation Services, Inc. “A key take away from the survey is although consumers recognize that it is a good time to buy, they are concerned about their ability to sell their homes. This is one of the reasons the market is still struggling to recover.”

For those on the fence about buying, uncertainty about selling an existing home (77 percent), concern about getting a fair price for the home (67 percent) and emotions (58 percent) are holding them back. For those who have sold homes in the past year, despite the down market 78 percent report that they were satisfied with the sale. Of these, 32 percent were very satisfied with the final price of their home and 46 percent were grateful they were able to sell given market conditions. A relatively small number, 22 percent, indicated that they were disappointed or resentful about the price they received for their home.

The survey highlighted Americans’ interest in trading up their homes. Of the 45 percent looking to trade up, 64 percent wanted more space or property, 49 percent a nicer house and 41 percent a better neighborhood. Only 21 percent surveyed said they were looking to scale down, and 34 percent said that they wanted a similar home.

The survey highlighted the importance of getting the right price in today’s market —74 percent of buyers believe that many homes could meet their needs and that price is a significant differentiator, while 26 percent stated that they were willing to pay top of market for a home that specifically suits their needs. In setting the right price, however, sellers were split—with 53 percent wanting to price right at or slightly below market to attract more bids and 47 percent wanting to price slightly higher than market and hoping to find a buyer willing to pay more.

The majority of respondents highlighted the importance of real estate agents in the process of buying or selling their home. Seventy-five percent of those surveyed said that an agent is very important or essential to this process, with only 24 percent saying agents are helpful but not imperative.

“Americans continue to see real estate agents as having a very important role in helping them price, buy and sell their homes,” added Mallozzi. “Although the data underscores the value real estate agents provide, it also shows that the industry needs to continue to work hard to meet clients’ unique needs.”

The Prudential Real Estate Outlook Survey was conducted online. The margin of error is +/- 3 percent. A more detailed breakdown of the data is available, as well as supporting charts and visuals, at www.news.prudential.com.

Prudential Real Estate and Relocation Services, Inc. is Prudential’s integrated real estate brokerage franchise and relocation services business. Prudential Real Estate franchises are independently owned and operated. Companies are selected based upon outstanding performance records, high levels of customer service and shared business values with those of Prudential. Prudential Real Estate is one of the largest real estate brokerage franchise networks in North America, with more than 1,600 franchise offices and 54,100 sales professionals in the franchise Network as of Dec. 31, 2010.

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All of the key components increased solidly during the month, making this the best report for consumer confidence since the onset of the financial crisis. In Southern California, investors have returned, indicating an increase in confidence among people that understand the dynamics of real estate.

With inventory levels in the below $1 million range at a level that should keep prices stable throughout the year, 2011 could represent a prime opportunity for buyers to begin searching for a home with an experienced Realtor. For sellers, this year presents a time when the advice of a qualified real estate professional is more critical than ever before to set realistic prices and receive a favorable outcome on the sale of a home.

Data compiled by the National Association of Realtors® (NAR) were also positive for both buyers and sellers of real estate, indicating that it only currently requires 13.6 % of median family income to buy a home. The unprecedented affordability found in today’s real estate market has made first time and traditional price range buyers quickly return to the market in 2011—a trend that is further evidenced by the fact that there is less than four months of inventory available in many price ranges below $1 million.

“One of the only major risks for buyers today could be increasing mortgage rates,” said Mark Johnson, vice president of marketing for Prudential. “It’s unlikely that mortgage rates will remain at the historic lows we have experienced over the past few years.”

Prudential’s monthly report features in-depth analyses and editorials about housing market data compiled by the California Association of Realtors, DataQuick and the multiple listing service. The report, which was developed to ensure consumers have the resources and information they need to make informed decisions, can be obtained by contacting a local Prudential agent. www.prudentialcal.com

Prudential California Realty delivers proven results and offers personal representation across Southern California and the Central Coast. A Berkshire Hathaway affiliate, Prudential California Realty is one of the top five brokerages in the nation.

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Our end-of-year analysis shows that the housing industry came very close to what we anticipated would occur in 2010 – a strong first half fueled by tax credits, and a subsequent slowdown as incentivized buyers were unable, or not confident enough, to delve into the market.

As a result, 2010 will end with slightly fewer total sales than in 2009, a year filled with major incentives. Because the second half of 2010 had none of the government subsidies, it became a litmus test to whether the market was ready to walk on its own. While wobbly, we are pleased that it did make progress. Were it not for the continued challenges impacting the national economy, we believe the second half would have had much more traction.

Positively Impacting Today’s Market

During 2010, the impact of mortgage rates falling to historic lows continued to drive refinance activity above typical levels. As of December 2010, we are seeing interest rates in the 4.5% range on a 30-year conventional loan, up from 4.2%. These generationally low rates provided critical traction to the housing market.

We view the ‘proof’ of traction in the pended sales numbers. In July, as government incentives came to a close, pended sales activity was tracking at 3.8 million total sales for the year — the lowest pended sales numbers since 2000. The August numbers saw pended sales activity tracking at approximately 4.6 million total sales, an increase post-tax incentive – clearly positive news. HomeServices forecasts that the number of total sales for 2010 will be remain slightly under five million, but dramatically better than where things looked to be in July.

It is this post-incentive growth that demonstrates the beginning of a “normalized” flow from which we can build in 2011.

Distressed Properties

High affordability, in no small part, fueled by the approximately four million residences at some stage of the foreclosure process, has been a key driver in 2010, and might be even more of a factor in 2011.

Home foreclosure opportunities are not coming into the market at the same rate they were earlier in 2010. This has impacted sales, as numerous highly desirable homes with meaningful discounts have yet to reach the market.

We must deal with distressed properties as part of our inventory in order to sell them, even if at highly discounted prices. We encourage banks to work with homeowners on a settlement package because foreclosures in the pipeline must be resolved before we see appreciation in prices.

2011: A Period of Stabilization

Current trends show that the return to a more active sales environment will be gradual and that adjustments must be made before any real growth can be experienced. A recent survey noted that one in five consumers believe the recovery will take place in 2015. We are slightly more optimistic, but balanced. We believe that the existing home sales market will remain at or near the five million unit level – WITHOUT the artificial stimulation of government subsidies – equating to stability throughout 2011.

We also expect interest rates to stay in the 4%’s to mid 5%’s. Affordability will continue at all-time highs, but we need to sell off the remaining distressed inventory before we see any real growth in total sales. We expect slow incremental growth, but not until 2012.

Experts predict that in addition to foreclosures, unemployment remaining in the 9.5% range will significantly impact on our industry. People want to own a home, many have the means — most do not have the confidence. That’s our challenge.

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