Charm City Baltimore Real Estate: Baltimore, Maryland Real Estate & Homes

In the last few months we’ve seen a growing number of so-called “short sales” in our market place, and around the country. While the name implies that the sale will leave the borrower “short” of the full amount needed to pay off the mortgage, there’s nothing “short” about the amount of time it takes to actually accomplish the sale. Short Sales, in fact, take forever. In 2008 I personally had clients who tried to buy a Short Sale. After eight weeks of waiting, the case had barely budged through the bureaucracy at Wells Fargo, and we were told it would take at least another eight weeks to be processed and reach the settlement table. National City, to their credit, had cleared the property within two weeks, since they had the second mortgage and were most likely not going to get a cent. My clients, who were purchasing a primary residence, simply couldn’t continue to put their future on hold. We found another house.

This one experience is an all-too-common example of what Short Sales are like. They are the real estate equivalent of Chinese water torture. In the past more than 80% of them fell apart before they could settle. Not exactly an efficient model of disposing of bad assets, eh?

So, its with some relief that we read that Fannie Mae is field testing a process that will shorten the time it takes to achieve a Short Sale. Relief, that is, until we read just what the process IS.

Our brightest financial minds have come up with a plan to “pre-approve” a property for short sale, even before a buyer has been found. Its proponents say that it will save the paperwork and bureaucracy of trying to find out what amount of loss Fannie will take and allow the purchase to proceed much more rapidly. Huzzah!

Except that the short sale I was involved with never got to that point after eight weeks of waiting. Wells Fargo had just gotten around to appointing a negotiator for that property to begin the process with Fannie (and meanwhile, the foreclosure department at Wells had started implementing foreclosure, blissfully unaware that there was a contract pending in the short sale department). And what about the fact that most properties are spending so much time on the market waiting for a buyer that the property might actually depreciate from the time the value was determined and approved and the time a contract is written. Oh yeah, and will the buyer try to negotiate down from that price? YOU BETCHA.

This “new process” is another screwball idea from the people in Washington who didn’t see the problem coming. President Obama seems to be coming around to the point that the previous administration’s appointees never reached… just take over the bad assets. Get the commerical banks out of the picture, get these mortgages off their balance sheets, and lets revive the housing sector. Once these assets are fastracked for disposal, the short sale process can truly be streamlined. Nothing else will really do the trick.

January is normally one of the worst months for real estate activity, for good reason. Cold, snow, and other seasonal hangovers do not translate into a busy market. So, its a hopeful sign that there have been some positive news stories in the last few days. First, home inventory levels dropped in December — not as much as in years past, but the fact that they dropped at all in the current climate is good. Fewer homes on the market means a tighter supply and some price stability returning. According to the monthly ZipRealty survey, Baltimore’s inventory level dropped nearly 6%. The other hopeful sign came out just yesterday, when December sales of previously owned homes were released by the National Association of Realtors. According to their data, home sales in December rose a robust 6.5% during the month on a national basis, the biggest monthly jump in nearly seven years.

Many of these sales, no doubt, were sales of low-priced foreclosures, but far from discounting the good news, I think that actually is incredibly positive. First, we need to eliminate the foreclosures from the marketplace before we will see prices begin to stabilize on occupied homes for resale. Second, these sales mean that investors are finally returning to the real estate market, since they are the buyers most likely to purchase a foreclosure for repair and rental purposes. Lastly, clearing the market of foreclosures will stabilize the lending institutions that have taken possession of them, and hopefully begin to unfreeze the credit markets for other qualified buyers.

Will any of this happen in the short term? Of course not. But the latest good news might mean that we’ve taken a few steps down what will definitely be a long road. Its a start.

The passing of the old year and the beginning of the new is a great time to look forward and try to predict where the road ahead will take us. So as 2009 trudges forward, here are a few things to think about and look out for, and what the new year might hold for the local real estate market.

Consumer Confidence
This index gets reported monthly and is an attempt to measure the level of optimism in the general public’s mind. I think its an important leading indicator of how the economy in general, and the real estate market in particular, will fare in the months ahead. People don’t buy houses if they are worried about their jobs, their financial stability, and whether their property will appreciate in the mid- to long-term. After the nation gets a new President, I think this indicator will begin to rise — especially if the new administration is able to get a stimulus package in place and mortgage interest rates, either naturally or artificially, are kept low.

The Change We Needed
Aside from the stimulus and mortgage interest rate support mentioned above, the incoming Obama Administration also will need to get a handle on last fall’s financial industry bailout: where that money has gone, and why banks are not using it to make existing home mortgages more secure and new lending a bit easier to get. The current Treasury Department “oversight,” from all public appearances, has not been enforcing the terms and spirit of the legislation that made the funds available. For housing to stabilize and begin to recover, troubled mortgage assets have to be addressed. That’s where this crisis began, and that’s also where I believe the solution will begin.

BRAC
We’ve been hearing a lot about Base Re-Alignment and Closure for several years, but according to the impact study prepared for the Department of Labor back in 2006, this is the year we should actually start to see some significant impact of these jobs moving to Maryland. The numbers are impressive: between now and 2015 there should be 14,000 new jobs on the bases at Aberdeen Proving Ground and Fort Meade, plus thousands more support jobs created by the move of these new professionals. Based on past base closure experience, at least 5,000 of those on-base jobs and thousands more of the support positions should be filled by relocating personnel, the rest will most likely be filled by new hires. That’s thousands of new households, many of them buying homes in Maryland. Thousands more of those new hires from the local population might also decide the new job and higher salary make a new house possible.
These figures are conservative; the government impact report actually predicts that there could be an even greater impact on local housing. However, since it was written in 2006 the economic downturn and the housing crisis were not factored into its predictions, so a healthy skepticism might be in order.
Since Baltimore and its surroundings have some of the most affordable housing in the region, we should see some increase in activity in those areas closest to the two bases in question: the Aberdeen area of Harford County, the east sides of Baltimore County and Baltimore City, and the southwestern neighborhoods of the city and adjacent areas in Anne Arundel County.

Pent-Up Demand
Baltimore’s real estate market started weakening in late 2006 and early 2007, which means we have been in a difficult environment for two years. That uncertainty persuaded people to delay making decisions and taking action, keeping them out of the real estate market long after they felt the need to change their living situation.
That pent-up demand can only be held back for so long before the need to make a change becomes overwhelming, so I believe that 2009 will see some of those people finally moving forward. Watch the local housing figures as spring returns, the weather starts to warm up, and the traditional spring market gathers steam. A robust improvement in sales could be enough to start stabilizing the local real estate market by bringing down our current inventory of houses for sale.
This could be good news for city neighborhoods that offer great housing value for the dollar, areas like Greater Hamilton and Lauraville, and the downtown and harbor areas where the draw is location, location, location!
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Remember, most everything above is simply my own opinion. (Pay no attention to the man behind the curtain!) I hope that 2009 has started well for you, and that we see some of these signs of returning prosperity sooner rather than later. Happy New Year!