The beginning of the year always produces a flood of opinion on what the next 12 months will bring. Much of the opinion is simply an extrapolation on what was occurring in the closing months of the old year. Nevertheless, some of the prognostications are worth vetting just to get an idea of market sentiment.

RealtyTrac continues to forecast pessimism. Last year lenders filed a record 3.8 million foreclosures, and RealtyTrac doubts that the peak has been reached. In fact, it doesn’t expect the trend to reverse until 2012. Resubmissions are one variable in RealtyTrac’s cloudy outlook. The company expects as many as 250,000 foreclosures will be resubmitted this year because of the mortgage-servicing scandal that occurred in the fourth quarter of 2010. The continued foreclosure glut, according to RealtyTrac, will shave another 5 percent off average home prices this year.

A little perspective is in order: We need to consider that more than half the foreclosures last year originated in a handful of states – California, Florida, Arizona, Illinois, and Michigan. These select burgs have seen home prices plunge sharply, unemployment rise sharply, or a combination of the two. Nevertheless, real estate is local. Toss out the negative outliers and the data look a lot better. The problem is, too many borrowers and buyers focus on the national numbers, which tend to skew impressions of the local real estate market.

RealtyTrac’s negative forecast on foreclosures and home prices overshadowed the National Association of Home Builders’ forecast for starts to climb 21 percent this year to 575,000 annual units. Granted, that’s less than a third of the starts that occurred during the market peak in 2006, but we could argue that many of those homes shouldn’t have been built. Working down excess inventory takes time, and last year’s winter spike in starts was simply demand riding forward on the back of federal tax credits. The market today is more attuned to economic reality.

We still believe rising mortgage rates are the economic reality for 2011. Price inflation is kicking in, as most of us empirically know after a visit to the grocery store and the gas station. The official numbers also support our observation. The December producer price index rose 1.1 percent, the most in 11 months. An improving outlook and rising demand in fast-growing markets like China mean producers are paying more for raw materials. These costs will eventually be passed on to the rest of us, if they haven’t been already.

Higher interest-rate pressure is also percolating within the Federal Reserve. Directors from the banks in Dallas and Kansas City want to increase the discount rate – the rate banks borrow from the Fed – by 25 basis points. In addition, the minutes from the Fed’s most recent meeting noted, “positive developments indicated the recovery was continuing.” A continuing recovery means continuing inflationary pressure.

Meanwhile, mortgage rates are holding steady after their run up into the new year. We think that presents an opportunity for borrowers to refinance or make a purchase before inflation pushes rates higher.