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

This is the time of year when people just sit inside during the dog days of a southern summer. High humidity, hot temperatures, and a city where not everything is air-conditioned all combine to slow down real estate activity. Even in good years, beach vacations and summer camps tend to slow down every business, and ours is no exception.

But this year is not so bad. That’s an incredibly good sign, given the market slump we’re coming out of. Federal homebuyer incentives are encouraging traffic through listings, and a wary sense of confidence that things are slowly getting better are having an overdue good effect. Cross your fingers that the fall market, which usually starts about Labor Day, will come roaring back.

I’d write more, but its just too hot.

I don’t usually lift large sections from local media, but this article in the Baltimore Business Journal by Rachel Bernstein, caught my eye:

Baltimore was named one of the top cities for young professionals to work in, based on cost of living, educational opportunities and the city’s nightlife.

The survey was conducted by Madison, Wisc.-based Next Generation Consulting. The report broke down cities into three population categories — Baltimore in the largest city category for those with more than 500,000 people — and evaluated them based on assets the report deemed as important to 20 to 40 year olds.

Among the other cities in Baltimore’s category, San Francisco was named No. 1. Baltimore was named No. 7, beating out Portland, Ore., New York City, Chicago and Los Angeles.

The seven indexes of a top city, or “Next City,” are average earnings, dedication to education, cleanliness of the city, around town, nightlife, cost of lifestyle and safety and diversity of the
population, according to Next Generation Consulting.

Baltimore residents have historically had an inferiority complex about their city compared to their more cosmopolitan neighbors in Philadelphia and Washington. But in the last ten years, the city skyline has grown and spread across acres of what once were parking lots and hinterlands. Neighborhoods have revitalized, and a burgeoning arts and entertainment scene has developed — whether its theatre in Mt. Vernon, fine arts and art galleries in Fells Point and downtown, or live music in Fells Point. Baltimore now has one of the most heavily populated downtown areas among cities its size, with the re-development of old office buildings into modern apartments and condos and the return of grocery stores and even big box retail to the Inner Harbor. And never forget about the added life that the tens of millions of Inner Harbor visitors, sports fans, half-dozen new hotels, and an expanded convention center bring to the city.

Baltimore’s affordable housing certainly provides one of the most important boosts to this type of favorable publicity. People can afford to live here, and live well. That’s a message that really needs to be told, and its studies like this that will tell it better than an ad campaign or promotional gimmicks that the public doesn’t always trust to be accurate. Young, first-time homebuyers have been the rock on which the budding recovery of our housing market is being built — the very buyers that are covered in this survey. The timing couldn’t be better for this type of news.

Baltimore is moving from the classification of “big small city” to “small big city”  and its about time.

Recent economic statistics and recent opinion polls are showing a peculiar dissonance in the public mind.

On one hand, economic news lately has been predominantly positive. Unemployment, while bad, has not risen as fast as had been predicted and there is even some evidence that its slowing and may be in the process of turning around. Housing news has been (and I feel will continue to be) positive, as residential resales and new home construction have both increased at surprising rates this spring. Even media outlets that tend to look on the dark side all the time (are you listening, Baltimore SUN?) have written headline stories on the positive trends that are developing. It would seem that economic stimulus, an increase in positive consumer sentiment, and other factors are turning this recession faster than had been predicted just six months ago. Great news, right?

Then how can the news be explained that a growing number of people are dissatisfied with the performance of the new administration and are losing confidence that the stimulus and the new government spending, regulation and other initiatives aimed at the recession will work? It would seem that the evidence is all around them, that it will — and is working — right now.

I have a couple of theories. First is simply that as a nation our ability to wait for good things has been severely diminished over the last 30 years. If its hard, if it takes awhile, and if it requires personal sacrifice, we don’t like it. We lose patience quickly, and blame the very people whose policies and principles are necessary to achieve the goal. Second, as a body politic, we have not yet managed to shake the poisonous habit of the last decade of shouting doom and gloom and twisting reality simply to fashion a hammer with which to beat up the other side. This has begun to achieve Orwellian dimensions… no matter the reality, no matter the truth… simply say the lie often enough and some people will believe it. And as more people join the Falsehood Chorus, more people believe. Passionately.

In my own personal life, I’ve seen friends who I have always credited with being smart, reasonable people become raving lunatics by repeating things that they have heard that are simply ridiculous. And believing them.

This gives me unease, both for the future of the efforts to curb this recession and return us to economic health, and for the future of the country. But as long as the public rewards the liars, the lunatics, the hatemongers, the loud and bombastic over the truth seekers and the reasonable explainers… we will be condemned to travel the wrong paths.

The recent statistics published by the National Association of Realtors — that pending sales of existing homes rose 6.7% in April over the previous year — was the first time in the last several months that highly publicized statistics actually agreed with the experience I was having, out in the trenches. Finally the stats publicly confirmed that people *were* returning to the marketplace and putting homes under contract. Throughout April and May I’ve been busier than I have been in years, and put in five contracts worth about $1.4 million total … one of which has now settled. And as I look around my office, I’m hearing tales of similar activity. My colleagues and I were running crazy, but none of the national statistics were showing it.

So this is real *good* news, but its also *real* good news. Statistics don’t always show what’s going on beneath. And the media — for whatever reason — prefers to trumpet bad news over encouraging developments. If this manages to keep going through the hot months, we will have a genuine recovery under way, with declining inventory and stabilizing home prices. I just hope that if that happens, the people who decide what news *is* will decide to let everyone else know. I’ll certainly be broadcasting it to anyone who will listen.

An idea that has floated around Baltimore for several years became headline news this week, as the city proposed studying the potential reviving effects of tearing down an elevated stretch of Interstate 83 from Chase Street to President Street. This elevated highway has divided downtown and Mount Vernon from parts of East Baltimore for the better part of fifty years, and has created a divide. On the west side of the structure is the prosperous nineteenth century city center; on the east side, desolated residential areas and empty parking lots (and, lets not forget, the state SuperMax Penitentiary). While I have no doubt that replacing the elevated highway with a wide, street level boulevard — President Street extended? — would knit the city back together and encourage a more unified and prosperous area, the problem comes with the price tag, currently estimated at a billion dollars. Real money.

All you have to do is look at other cities where such a structure has been removed to see that it could be wildly beneficial. One city with which I’m very familiar is Boston. The Central Artery divided center city from the North End for several generations, and when I first moved to Boston in 1984, talk was just beginning about the “Big Dig” that would rip it down, replace that stretch of Interstate 93 with a tunnel, and a wide boulevard would be built on top, ending the harrowing experience of crossing beneath the highway over a desecrated street pattern, to walk or drive from one part of the city to another. Despite what you think of the results in Boston from a financial and quality of construction standpoint, the results of the “Big Dig,” finally complete twenty years later, (alas, long after I moved away) have proven its merits when it comes to knitting the city back together.

But Boston is not Baltimore. Boston has a multi-prong, comprehensive mass transit system that is used by hundreds of thousands of commuters every day. Traffic and parking in that colonial city convinced people generations ago to take public transit to work and leave their own vehicles at home. The investment in the Central Artery tunnel was made with a world-class transit system in place and functioning well.

Baltimore has practically no public transit. Its bus system is pathetic. Its one heavy rail subway serves Owings Mills and Johns Hopkins Hospital and very little in between. Its one light rail trolley system is unfriendly to city dwellers because its route takes it through a lightly populated river valley to the suburbs, north and south. Amazingly, the two rail systems do not connect. There is a plan on the boards to create another light rail line from east to west that might connect to the other two, if the money is there. But that plan is in serious jeopardy because two short sighted communities would rather drown in carbon monoxide from the cars choking their streets.

Spending a billion dollars to tear down a highway, and make the automobile congestion even more abysmal, is true insanity.

Spend a billion on a comprehensive, functional, convenient light rail transit system that knits the existing communities of the city together and gets people out of their cars. THEN talk about ripping down highways — because then, and only then, will you not need them.

According to a recent article in the Wall Street Journal, Fannie Mae is in the process of tightening the requirements for condominium mortgages at the very moment in time when home lending of all stripes needs a boost. We are also about to see a flood of new condominium units come onto the market — those projects where financing had been obtained and construction begun before the lending meltdown took place — and these new rules will certainly make it more difficult for those developers to avoid bankruptcy.

First the specifics: Fannie Mae has always had restrictions on condo lending, in particular the requirement that the developer own less than half of the units in the building. That requirement will now be greatly increased, so that a developer will have to have sold at least 70% of the units before Fannie will guarantee the mortgage. The new rules will also require that a purchaser have at least 25% downpayment to avoid paying a closing cost penalty of .75% of the loan — no matter what the purchaser’s credit score. It keeps going. Fannie now will not back the loans in an existing condo association where 15% or more of the residents are behind on their condo fees, or where a single outside entity owns more than 10% of the units.

The mortgage giant defends these new policies as being careful with the taxpayer’s money by not taking responsibility for loans made in speculative or failing condominium developments, while ignoring the fact that these tightened rules make it more likely that currently healthy communities will be weakened. In many cities, condominiums are the least expensive option for home ownership and serve as the entryway for first time homebuyers, so these rules are making it tougher for new purchasers to enter the housing market and help drive down the excess inventory that has been built up over the last three years.

The inventory of unsold condo units will only swell as projects currently under construction start to open sales offices. According to the National Association of Realtors, the United States ended 2008 with a fourteen month supply of condominiums on the market, the highest backlog since they began keeping records ten years ago. In 2009, industry sources estimate that another 93,000 brand new units will enter the market across the country — a whopping 12,000 of them in the greater New York City market alone. Not only will these units be more difficult (if not impossible) to sell given the new guidelines, but even some of the pre-sold units may not settle since lenders now have these new rules in place that will “de-approve” buyers who thought they had a loan locked in. Never mind the fact that these units may also be worth significantly less than their pre-construction pricing a year or two ago.

Sometimes that Law of Unintended Consequences is a real bitch.

Its been awhile, but in many markets in the United States it is once again a no-brainer to own a home. According to a recent article in the Wall Street Journal, the financial advantages of owning had been dwindling over the last few decades. Evaluated nationally, after tax mortgage payments have been averaging over 25% more than rental payments for nearly 26 years, according to a California real estate consultant firm. In 2006 some metro areas saw that grow to as much as 66% more. But, after the last few years of housing meltdown, average montly rent for the largest fifty metro areas was $1,045 while the after tax mortgage payment was $1,300, the narrowest gap (24%) since 2001. Some mortgage professionals have estimated that if mortgage interest rates fall to 4.5%, a number often seen as possible in the next few months, the gap will narrow even further to a 1998-era 14%.

A study by Moody’s Economy.com gives even better news. They have found eight markets around the country where home prices relative to rents are within 5% of historic levels, leading one of their economists to predict, “The bottom is coming into view.”

While we’ve heard that phrase before over the last few years, its nice to have a fresh reason to believe it might be true this time.

There was a populist backlash to the President’s housing initiative last week, with an unlikely leader. A cable-TV commentator known for his rants, Rick Santelli of CNBC lost his cool again when describing the package of mortgage revisions that the Administration hopes will put the housing market back on the rails, stabilizing it and cutting down on foreclosures while keeping as many people as possible in their homes. As if to add some kind of justification to his nonsense, Mr. Santelli turned to the traders on the floor of the Chicago Board of Trade for support and used their obedient chorus of catcalls as proof that “average America” didn’t like the President’s plan.

Later, as a guest on Chris Mathews’ HARDBALL, Mr. Santelli went further, advocating that people in trouble simply be allowed to fail. He added, dramatically, that he’d be willing to “bite the bullet” and let both of his neighbors go into foreclosure if necessary because he wasn’t planning to sell his home. He would ride out what he considered the small amount of collateral damage to his home or his neighborhood, because he wasn’t planning to sell anytime soon. The next day, on the same program, he began to finally tip his hand when he used the term “redistributionist” to describe the goals of the plan. Mr. Mathews moved in for the kill: it turns out that Mr. Santelli is a Republican who voted for John McCain.

Mr. Santelli engaged in manipulative, insincere populism, and his premise and description of the results were simply wrong.

I’m sure that in the lovely upscale suburbs of New York and Chicago, the million dollar plus homes on large lots could indeed survive several foreclosures without significant hits on property values. The neighborhood probably won’t see an  increase in drug havens, increasing street crime, physical deterioration, or other negative results. Investors won’t swoop in to snap up the lavish homes, slap on a new coat of paint, and then stuff them full of tenants who have no ties to the neighborhood and have no real stake in maintaining it. In short, I’m sure that in Mr. Santelli’s neighborhood he could let the country’s housing market go down the toilet without too much discomfort. It makes it very easy for someone in his position to wrap himself in populist rants of “unfairness” to thwart a solution that will mitigate the terrible consequences for the rest of us.

So, Mr. Santelli, since you’ve made it clear you don’t give a damn about the rest of us, why don’t you just go back to your lovely home in your lovely neighborhood, build a very, very, very tall fence, buy lots of assault rifles to fortify the ramparts, and never come out again. I can tell you that the rest of us will not miss you.

We’re now less than 24 hours since the Obama Administration announced the shape of the housing rescue package that will be TARP2. The short-sightedness of much of the opposition in their attacks is truly appalling. Many of their politically motivated arguments have been widely debunked by other sources, but the “moral hazard” argument is the one that bothers me the most. Lender statistics show that once a property is 90 days behind, the ability of a borrower to have a successful renegotiation of their mortgage is severely compromised. If we are going to truly avoid some of the foreclosures that are coming, the renegotiation has to begin while the struggle is still somewhat successful — while the borrower is still current, but when they know they are at the end of their rope. That’s how you prevent a property from becoming a foreclosed property.

The people who argue that is an unnecessary “bailout” which punishes the “people who have played by the rules” and have cut back, saved, etc. to be able to live within their means is really a straw man. It needs to go away. The folks who will be helped by this package also “played by the rules.” But for reasons beyond their control… declining housing market prices, loss of work, medical problems… they are fast sinking and will soon go under. There is no “moral hazard” in this program. Speculators and people who got in trouble by living beyond their means are specifically omitted from it.

And what about their neighbors who “played by the rules” and are making it by ok? They will be helped by the fact that the house next door does not go into foreclosure, presenting a potential haven for illegal activity, and dragging down their property values by another 9-10%. Their community will benefit from having homeowners staying in their homes, not being sold to an investor at a bargain price who will bring in renters who may, or may not, value the quality of life in the neighborhood, maintain the house, cut the lawn, trim the trees, shovel the walks, etc.

In short, these carping critics would have criticized Christ for hurting local fishermen and bakers by performing the miracle of the fishes and the loaves. I say we need a miracle right about now.

I don’t know of many people who really loved the idea of new home developers putting bigger homes on smaller lots, but certainly many people over the last decade bought them. Personally, if I had a choice between two huge houses sitting so close to one another that I could see into my neighbor’s window, and a two similarly sized townhouses … I’d pick the option with the solid wall separating us from the nuts next door. (And, in fact, I did.)

Still, the “McMansion” craze was a national development, and as the square footage of these hulks increased and the size of the lots decreased, you had to wonder if living shoulder to shoulder in the suburbs with little underlying sense of community wasn’t the cause of many of our society’s problems. Media rooms and “man caves” taking what used to be times of communal experience and building camaraderie and putting them in windowless basement rooms where we were cut off from those around us.

Now, in the middle of our dark winter, comes news from the National Association of Homebuilders. The average size of new homes is shrinking — from the 2,629 sq. ft. average in the third quarter of 2008 to 2,438 sq. ft. in the fourth quarter of the year. Fully 88% of their members surveyed in January said they will be building a larger share of smaller homes in their new developments, although they make no mention on whether they will try to downsize the lots as well. And from that venerable source of information on how Americans design, build and decorate homes — Better Homes and Gardens — come survey results involving 733 potential new-home buyers that find 32% of them expect their new home to be “either somewhat smaller or much smaller then the one they already live in.”

I wish that the reason for this change in attitude was a sense that things had gotten out of hand instead of the devastating impact of the current economic crisis. Not a week goes by that I don’t go into a home built two generations ago, where mom, dad and a brood of four children were raised to hard-working adulthood in half of the square footage of our current median home size of 2,090 sq. ft. These were real communities, where people got to know their neighbors, where much of the activity of life took place on front stoops in warm weather, and people looked out for one another.

And when adults had to get away from the little darlings, there was also a bar on every corner. Dark, windowless “man caves” where…

Oh, never mind.