Well, think about it… when the area was blanketed by back-to-back blizzards and many city streets were nearly impassable for two weeks, who could go out and show property? There are still damaged gutters and dormers scattered throughout the city’s neighborhoods. If the winter wasn’t bad enough, we’ve now had 40+ days this summer where the afternoon temperatures reached 90 degrees or more — many of them over 100 degrees. People stay inside when the heat is that oppressive and don’t go out and look at property.

Its a shame that buyers are letting the summer pass them by. Prices in the Baltimore area are still declining in many neighborhoods, and according to June statistics, Baltimore was one of only two major metro areas where prices had not stabilized or even started back up. Also, mortgage rates have declined to the lowest level that we’ve seen since 1971, when records were first kept on that statistic. So with prices declining and mortgage money cheap, why aren’t more buyers scooping up bargains?

Knowing the Score
A report came out this month that gave one possible reason. The economic troubles that we’ve been experiencing in this country have lowered significantly the average credit score. FICO, Inc., the company that calculates your credit score by combining data from the three large credit monitoring companies, announced that now 25.5% of consumers have a credit score of 599 or below. Before the recession, that figure generally averaged about 15%. That means that the great terms and historically low rates we’ve been seeing on the news are now unavailable to over a quarter of the population. Some analysts expect that before we truly recover from this recession that figure will rise to nearly one-third.

This is the segment of the population that, in the past, had to rely primarily on sub-prime mortgages to be able to get into the housing market. That area of lending has pretty much dried up in the last couple of years. Wells Fargo, currently the nation’s largest mortgage lender, made news this month by completely shutting down its sub-prime lending division and laying off over 3,000 employees. But although sub-prime now has a bad smell attached to it, remember that was primarily because of the way that Wall Street and large financial institutions had cut up, combined and re-packaged sub-prime mortgages into investment securities that weren’t at all clear on the level of risk they carried. Sub-prime lending had existed as a viable, profitable product for years before this recent mess started.

It doesn’t make sense that the housing market will ever regain robust health while we are content to tell 25-30% of the population that they are not able to own a home. If you are thinking of buying your own home, its important that you find out what your FICO score is, and how that will affect your status as a borrower. There are steps you can take to mend a low credit score, and a qualified mortgage officer or any of the local homebuyer counseling agencies can help you get started down that road.

May 1 happens to be the day after the Federal tax credit expires for home purchases. As a Realtor, I’ve paid a great deal of attention to the various predictions — because its my livelihood — but it has great implications for the health of the financial sector, for the economy in general, and for how quickly the country can climb back out of the hole created by the Bush Administration and the Great Recession. Most pundits I’ve heard or listened to seem to think that the housing market will slow down again, but they seem to divide into two camps based on their reasons.

Borrowing Buyers

The first group of gloomy pundits advance the idea that because of the tax breaks, we’ve been borrowing buyers from the future; sucking them into the process sooner, rather than later, and so after April 30 we will have a vacuum of buyers for some length of time. This is the group of people who felt that the automobile program, “Cash for Clunkers,” would do exactly the same thing for the auto market — cause buyers to jump in before they were planning on it. Now, if you look at the recent auto sales and the current stock prices of Ford and GM, you’ll see that simply didn’t happen.

It won’t happen with the housing market, either. Homebuyers do not buy homes on a whim. Its a major investment and it can’t be rushed. This has been true especially because the IRS refused to bow to pressure to make the tax credit available to buyers at the settlement table. That meant the buyer had to have their own cash in hand, qualify for the financing to buy, pay all the normal expenses, and then wait for the tax rebate later. I can’t say that I know of anyone who suddenly decided to accelerate their homebuying schedule because of the government program. I believe the tax credit did coax out buyers who had been on the sidelines for the previous three years, watching home prices slide, and who then — like savvy investors — were poised to come out and land a bargain.

Unhappy Rabbits

The second group of gloomy pundits might be compared to Marilyn Monroe in All About Eve, when she surveys a room and asks, “Why do they all look like unhappy rabbits?” This group believe that homebuyers are skittish, and as soon as the tax credit disappears, they will all hop back to their rabbit holes and hide.

The latest economic data says otherwise. March consumer spending rose much more than expected, consumer confidence is rising, and the stock market exudes the robust energy that led Newsweek to declare on their cover that “America is Back.” Now, we still have major problems to overcome: unemployment needs to come down, a second wave of foreclosures needs to be effectively softened by Federal programs to help homeowners stay in their homes, and who knows what else might be lurking around the corner. However, I am already working with buyers who knew from the beginning that they would not be able to qualify for the tax credit, and they are buying on their schedule, not the government’s.

Pundits in the early 1990s predicted that the recession we were experiencing then would be long, and deep. They predicted that the entire decade would be swallowed up by slow economic growth and higher than normal unemployment. They were wrong, totally and completely, and the Nineties turned out to be one of the most prosperous decades in our history.

I have no reason to think that today’s pundits are any more qualified or accurate as fortune tellers. So, what can I do for you today?

Home buyers, especially first time buyers, need to break away from the confusion of the daily news cycle about real estate. Here’s a longer range view.

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While the market has been flooded with good news in the last few weeks, an end of the year reflection still shows we have lots of work to do in the new year.

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A drop in consumer confidence frustrates the market as autumn settles in and buyers disappear.

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The Baltimore-Washington marketplace was awash in good news, even before Fed Chair Bernanke declared the recession over!

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First in an ongoing series of podcasts, containing an overview of market conditions as we enter the Fall 2009 market.

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