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

Every real estate agent I know is thankful that 2010 is nearly over. When the year began there was a lot of hope that the housing market would begin to recover by year’s end, and the Federal Homebuyer Tax Credit was stirring people to buy — boosting that hope.

But when that credit expired, hopes for the recovery began to expire as well. One of the hottest summers in memory kept people inside, and the economic news kept us all sweating. Late summer and early autumn sales numbers retreated back to levels that were equal to the worst of the housing slump.

Never mind that housing prices continued to fall and started to look like good values again, or that mortgage interest rates had fallen to levels that hadn’t been seen since our grandparents had been buying homes. No amount of good news could convince the buying public that it was time to make a purchase.

One of the most important trends of 2010 is only now beginning to become plain: the huge number of properties in distress — either 90+ days late on the mortgage, listed as a short sale, in pre-foreclosure, or actually foreclosed upon and bank-owned — was creating a large “shadow inventory” of homes that lenders were not listing for sale because buyers were not absorbing the distressed properties that already were on the market.

There are a couple of sources for this information. In late November, CoreLogic released a report on the large increase in the “shadow inventory” in 2010. As of August, there were 2.1 million units of housing classified as being in that shadowy group, up more than 10% from the previous year. When added to the 4.2 million “visible” units currently for sale, that constitutes a distressed property glut that isn’t moving. According to CoreLogic’s report, Maryland has a two-year supply of such distressed properties; the figure for Baltimore-Towson is only slightly better, with an 18-month supply.

While the sharp and rapid rise in the number of properties included in this category is alarming, at the same time overall sales figures were falling, and the proportion of distressed homes within the number being sold also fell. According to the National Association of Realtors’ 2010 Homebuyer Survey, only four percent of buyers purchased a home that would be categorized as “distressed.” Nearly 40% of those buyers did not even consider a distressed property among their home choices. Of the remaining 60% who at least considered such a home, one-third decided against it because the process of dealing with the lender as seller was too difficult or complex. One-fourth decided against it because the house was in poor condition; the remaining buyers just couldn’t find a distressed property that they liked.

What does this mean? Different professionals will come to different conclusions about this data, all of which was just released at the end of November, but here are two things that I believe are clear:

1. Buyers are learning that purchasing a distressed property, especially a short sale, is not easy and the vast majority of them are opting not to do so. Since half of all homebuyers in 2010 were first-time homebuyers, it might be that the uncertainty of how long it will take to settle such properties makes them impractical. While these first-time buyers don’t have a home to sell, they do have a landlord who requires a set amount of notice to get out of their lease — give notice too soon, they might become homeless; give notice too late, and they might be required to pay extra rent. If lenders want to make these distressed properties more attractive to these buyers they have to standardize the short sale process and get it done in a predictable amount of time.

2. Lenders may have to hold back millions of dollars worth of ‘shadow inventory’ well into the future. That means maintaining these properties in liveable condition for an extended period of time. Most lenders are NOT good at this. While they want to get their money back on these properties, they cannot flood the market with them all at once. Not only will that drive down the price on the properties for sale, it will also drive down the values on the neighboring properties, putting more homeowners “under water” and destabilizing the neighborhood. Since that lender may also hold the mortgages on a significant number of properties in the vicinity, flooding the market with bank-owned properties just drives down the values of the rest of their investment portfolio. So, while they won’t like the idea of holding on to these properties, self-interest will demand that they do.

There are many indicators that actually give hope for a much better 2011. I’ll cover those in January’s post.

I hope all of my readers have a peaceful holiday season, and best wishes for a prosperous new year!

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This month its time to answer a couple of the questions I’ve been getting from readers.

Q. My brother graduated from college five years ago and got a great loan to buy a house, using 100% financing and settlement assistance programs to pay most of his closing costs. Now I’m graduating in December, have got a sweet job lined up, and I’m being told no one can help me. What’s the deal?

A. Well, you’re a victim of the real estate meltdown. The generous financing programs that fueled the real estate boom of the last decade were one of the first things to go after it all came crashing down. The current market is on a different planet than the market of five years ago: some of the largest lenders in the country then have disappeared today, or been absorbed into bigger companies, and we’re going back to the “good old days” when you had to have some skin in the game.
There is some good news. FHA loan programs still allow you to buy a home with just 3.5% of the purchase price as a downpayment. Also, many of the settlement expense loan programs are still out there for qualified buyers. Try to keep your debts down (including student loans and credit cards) and save some money, and you should be able to purchase a home before you know it.

Q. I bought a house in Baltimore with something called a Ground Rent, but it was one that no one has been collecting. I’ve heard that there was a major change in the law that might allow me to get rid of it altogether, and I’ve also heard that wasn’t happening. I’m confused.

A. Ground rents confuse everyone, so you’re not alone. A ground rent is, literally, a lease payment for the right to use the land your house is on, like the old ‘quitrent’ you might have learned about in medieval history class! In Maryland, they generally are collected by someone, and can be bought out by a homeowner for a small payment and legal fees after which the deed is changed to Fee Simple (where you own the house and the land together). Some Maryland ground rents, you’re correct, are so old that no one is actively collecting them. Also, some were not redeemable at all.
After a small scandal a few years ago where someone actually lost their home for non-payment of the ground rent, the legislature tried to modernize and reform the ground rent system by creating a registry, and setting a deadline by which all ground rents had to be registered by the owner, or else they would become void.
Ground rent holders, however, have challenged that reform in court. So everything is on hold until that case is heard and judgment is rendered.

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Most homebuyers are interested in technologies that will save energy and reduce the monthly utility bills. Reducing energy consumption is also a primary goal of “green” technologies, and there are many ways to reduce the amount of energy you use without having a major impact on your lifestyle.

Owners of existing homes, however, are sometimes reluctant to research this subject because the flashy, high profile technologies, like solar panels, are expensive to implement and inconvenient to try to retrofit into older homes.

Reducing energy consumption is essential, however, both for the long term good of the planet, for assisting stretched household budgets, and — and this may be a surprise — for making your home competitive when you are trying to sell it. Replacing appliances and windows will raise the value of your property considerably, and on top of your monthly savings on energy, will reduce the cost of the improvement by resulting in a higher sales price. How? Most buyers in this market will research the monthly energy costs the current owner is paying, and this information is readily available with a simple phone call to your utility.

So, here are a few suggestions for ways that you can reduce your energy bills, and in the process, update and make your homes more attractive to new owners when that time comes.

1. The first way is the easiest and the cheapest. In fact, you’ll save money from the very first day: Take advantage of utility deregulation in Maryland. Finally, more than a decade after it was enacted, utility deregulation has resulted in real competition for most Maryland utility ratepayers. Check your current bill, and you’ll see a “rate to compare,” which is the amount your electrical supplier is charging for electricity.

Be aware of the fact that your electrical supplier is now separated from the company that delivers the power to your home. The delivery company will remain your local utility. You will receive your bill from them, as always, and call them if there is a power outage.

Make sure that your new supplier beats that “rate to compare”, doesn’t make you sign a long-term contract, doesn’t charge you to switch (or to leave), and doesn’t lock you into a particular rate. Rates go up dramatically in the summer, and come back down in winter. Its in the consumer’s interest to let that rate float, not be locked in at an inflated price. The supplier that I’ve recommended, who meets all of those criteria, and who offers the additional bonus of buying green wind-generated power, is Viridian. You can research this company, and switch your supplier if you wish, all online at www.viridian.com/charmcity. A list of all the companies that are currently licensed by the Public Service Commission is available at http://webapp.psc.state.md.us/Intranet/SupplierInfo/searchSupplier_E.cfm.

2. Pay attention to those Energy Star labels when you are replacing appliances, especially refrigerators, washers and dryers, and water heaters. According to the US Department of Energy, these appliances are accountable for about 20% of your home’s energy consumption. Older appliances, pre-1990 vintage, can consume double the energy of their new replacements. And until the end of 2010, there’s a Federal tax credit of up to $1,500 for the purchase of energy efficient products, like the new line of tankless water heaters, which are on average 24-34% more energy efficient than conventional storage tank water heaters.

3. Are your windows old and falling apart? Replacing them with more efficient models can save up to 25% of your winter heating bills and 15% of your summer cooling expense. Properly installed, modern windows are also a huge selling point for a new owner, and they can make your life a lot more comfortable.

The US Department of Energy maintains a website which outlines these type of improvements, their relative benefits, and — if you’re not ready to do any of these types of replacements — can offer ideas for inexpensive alternatives, all of which will reduce your energy bottom line and reduce our usage of fossil fuels. You can access that website at http://www1.eere.energy.gov/consumer/tips/index.html.

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This neighborhood — a little slice of Mt. Washington tucked in between Falls Road and Falls Run — is a hidden gem that the residents say is a great place to live. Turn onto this dead end street and you can see why! The tidy cottage style homes, each with their front porch, invite you to put up your feet and stay awhile. This three bedroom, two bath house has large, open main rooms, warm natural wood cabinets in the kitchen, and newly carpeted bedrooms. Shoot a round of pool in the basement recreation room or, on colder days, warm yourself in front of the wood stove. Easy access to Falls Road, Interstate 83 (JFX), and the Baltimore Beltway (I-695) makes this a great commuter’s home. The stores and cute shops of Mt. Washington Village are just a short distance away.

Bedrooms: 3
Bathrooms: 2

Available at $157,000!

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This property has a WalkScore ranking of 57 (Somewhat Walkable).
Click here for more information and the location of local resources.

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2010 has been a challenge to the real estate market, not only because of the mortgage foreclosure crisis, the up-and-down recession, and the crisis in consumer confidence. Its also had some of the most extreme weather we’ve seen in a generation. How is that a challenge to the market?

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.

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The internet has certainly revolutionized the way that people shop for real estate. It has also made it much more likely that inaccurate, out-of-date, and even fraudulent information makes it into your inbox. Here’s a primer for the homebuyer in the Internet age.

The MLS
Before the Internet was born, listings were literally kept in a book — available at each real estate office — containing the listings that office’s agents were presenting to the public. Searching for a home meant a lot of driving around looking for signs, visiting offices to look at the listing books, and a reliance upon the agent knowing what was available that met your criteria.

Once the Internet was widely available, the real estate industry was one of the earliest players and multiple listing services quickly got their member brokers to agree to make everyone’s listings available to the general public. Brokers also wanted to make the MLS available on their own websites, and so an Internet Data Exchange agreement let the number of sites who carried listing data multiply quickly. National search sites, such as REMAX.com and Realtor.com, started to bring together listing data from all across the country. Others came up with the idea to offer computerized property evaluation services, and another group of sites let customers who had visited certain properties blog about their impressions of it, so that the next buyers who came along could read about the property’s weaknesses and strengths without stepping foot inside it themselves. The modern Internet is bulging at its virtual seams with real estate related data of all kinds.

Buyer Beware
The problem is that some of that information is garbage. While many sites are great at importing new data, old data sits around long after its useful. Buyers I work with will often come to me with questions about a property they found on one website, but not on another. When I investigate on the MLS directly, I’ll find that the property isn’t actually for sale. Sometimes it was withdrawn, or the listing expired, months ago. In one recent case, the property had been sold two years earlier!

Another major source of inaccurate information are the property evaluation websites. Several recent studies have found large margins of error in these computerized estimates of value. On the largest of these sites, their zesty evaluations were routinely off by over 7%, and you had a one in eleven chance that your estimate would be off by a whopping 25% or more. Now, if your house is worth $200,000, a 7% routine error equals $14,000!

The newest trend in real estate sites are the blogging sites where, in theory, you learn details about properties that the bloggers have visited. However, there are no methods to prove that these visits actually took place, or that the blogger might not actually be the seller of a competing property down the block who went online to trash the competition.

The Solution
The best way to make sure you do not use wrong information in your home search is to ask your real estate professional for the sites that offer data of the highest integrity. In my practice, the sites I recommend are all ones that I know import information on a daily basis directly from our MLS and routinely remove listings that are sold, withdrawn and expired, such as the two largest national sites I’ve mentioned above, Realtor.com and REMAX.com. If you’re looking primarily for local data, then the best site is HomesDatabase.com.

A new service from our local MLS offers even better data, however. Many local real estate agents have subscribed to Listingbook, which taps directly into the very same MLS data that agents themselves use. I’ve been making this available to my buyers for about six months, with great satisfaction. Data is refreshed every 15 minutes, and the interface is intuitive and flexible. You’ll find many links here on www.charmcityrealestate.com that will allow you to open your own search using Listingbook. (Including that one!)

Everyone has read or heard of the problems in the housing market. But most of the news articles and commentary have focused solely on the single family home situation, whether townhouse or detached. The economic recession and foreclosures have created significant problems for condominium owners and buyers that have not been as widely publicized. So if you own a condo, or think you might like to, you should pay attention to these issues before you want to sell or buy.

Condominiums became popular as the price of owning a single family home grew, giving first-time buyers an option to become homeowners. Owning an apartment in a larger building, however, brings a secondary player into the process: the condominium association. The association is in charge of caring for the building itself, for the benefit of each individual unit owner. When a buyer goes to their bank to buy a condo, the bank not only has to approve the buyer for the loan, they also have to look at the condo association to make sure that its being well run, and is doing a good job of looking out for the property in which the bank will be investing the buyer’s mortgage.

For that reason, lenders and the Federal Housing Administration maintain lists of “approved” condominiums for which they will approve mortgage loans. The criteria for this approval are important, and should be examined by every condominium association Board of Directors and considered — along with their condo bylaws — as an important guideline for their operations. When your association falls off of these approved lists, it becomes much more difficult for your unit owners to sell their homes, which means prices fall and you have a group of unit owners who are not very pleased with your stewardship of their investments.

So, what are these criteria? Here are some of the items that can severely jeopardize your association’s ability to be approved:

• pending litigation against the condo association, or by the association against the builder/developer.
• 15% or more of the owners being delinquent on their condo fees, even by just one month.
• a high percentage of investor-owned units, or one entity owning more than 10% of the units.
The exact percentage varies, depending upon the type of loan or the lender, but in general terms
an association should keep a watchful eye on the number of investor-owners, and make sure that
the public record is correct as it classifies which units are owner-occupied and which ones are not.
• lack of a reserve fund equal to at least 10% of the annual budget.
• lack of necessary insurance coverage, both property and flood insurance.

If your condo association has issues with any one of these bullet points, it could mean that buyers will have a difficult time getting financing to move into your building, and that your current owners are unable to sell quickly and for the best value.

One other item for condo associations to consider: are your condo fees themselves becoming barriers to buyers? For instance, if a typical buyer interested in your building can afford a total monthly payment of $1,500 — including taxes, condo fees, insurance, principal and interest — they most likely can’t afford to purchase a unit and live in your building if the condo fee is $500 a month. Yet, I’ve seen the number of non-luxury condo buildings in the Baltimore area with condo fees far above $500 per month growing in number, squeezing out the buyers in need of financing that they rely upon to absorb units for sale. With those buyers no longer in the picture, your building now has to rely upon cash-rich buyers and investors as purchasers, prices have to fall to reduce the cost of financing, or the units may go unsold and your current owners move out and rent their property, becoming investor owners. If your condo association hasn’t submitted its subcontractor agreements or management contracts to competitive bidding in a few years, its time to do it. Saving money and lowering condo fees — while still maintaining and caring for the property — will be essential exercises for every condo trustee!

** Richard Pazornik of SunTrust Mortgage provided essential lender information for the writing of this article. He deserves my deepest thanks for sharing his expertise.

Nobody can tell you for sure what happens on May 1. No, that’s not the day on the Mayan calendar when the world is supposed to end. That’s still two years away, so you can relax (a little!) about that.

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.

For a transcript of this podcast, please email me at .

Real estate news is saturating the business media lately, because so many people realize that the health of the real estate market is crucial to the nation’s economic recovery. The problem is the news can be confusing. One day you hear that foreclosure activity was down (which is good) but still much higher than one year ago (which is bad). The next day you hear that pending sales for last month were down (which is bad) but much better than one year ago (which is good). So, what do these confusing news reports do to your attitude if you are thinking about taking advantage of the $8,000 tax credit and buying a home this spring? Are you choosing to focus on the good news or the bad news?

Well, here are four items that are not getting a lot of coverage. Taken together, these four facts should leave no doubt in your mind that this is possibly the best time to buy real estate in at least a generation.

1. Prices are down, and in many areas are still falling — although more slowly than last year. If you’re a buyer of real estate in this market, you are definitely seeing lots of inventory and you’re seeing it at lower prices than you are accustomed to. The fact that the rate of decline is slowing means we’re near or at the bottom, and in some areas prices are actually stabilizing and beginning to make very small advances. Generally speaking, your dollar buys you more house now than at any time in the last five years, and it might not get any better than this.

2. Interest rates are at historic lows. The cost of borrowing the money you need to buy your home is incredibly affordable right now. And the fact that we can actually say both of these things at the same time is itself historic. In the last fifty years we’ve had many periods of time where either prices were low or rates were low, but its nearly unheard of to be able to say both at the same time. So, not only does your dollar buy more house, the interest you’ll pay on that dollar is very cheap by historical standards.

So, we have these two incredible opportunities existing — three, counting the $8,000 tax credit available until the end of April. But, I hear you ask, “How can we be sure that this situation won’t go on for awhile?” That’s where the last two of my four facts come into play.

3. Interest rates won’t stay this low for long. Most economists agree that when the economy starts to gain real steam, fear of inflation and the national debt will force the Federal Reserve to increase its interest rates to banks, who will then pass that increase along to consumers. We could be looking at substantial increases over time, which will leave you kicking yourself for not acting while the cost of borrowing money was so low.

4. Statistics point to a potential housing shortage in a few years. There are a couple of things at work here. First, new home builders have cut way back on their building to “ride out” the recession. It will take awhile for them to get construction back underway and lay out and design new housing developments once they see buyers coming back to their model homes. Second, there is a new wave of homeowners beginning to search: the “echo boomers,” or the children of the Baby Boom generation. This generation is estimated to be 50% larger than the original Baby Boom itself, and they are now roughly in the 18-31 age range: prime first-time homebuying years. Basic supply and demand will rule the day: housing will be in short supply and prices will rise.

There you have four very good reasons to step back from the day to day news cycle and take a long view about home ownership. So, what can I do for you today?