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

As 2011 winds down, there are only a few things we can know for sure. One of those things is that the real estate market will continue to be a major topic of concern and conversation in 2012. With a growth in consumer confidence in November, continued low interest rates, and a slight increase in activity in the market this December, there is more than a glimmer of hope that the new year will finally (finally!) bring some welcome relief to housing which will aid the economic recovery.

So, with that hope in mind, here are a series of questions you might ask yourself this New Year’s Eve to help you decide if 2012 is the year that you should buy a home.

How long do you anticipate being in Baltimore?

The average American homeowner stays in their home 5-7 years. If you think that because of your job, education, or family life that you will not be in the region for a minimum of 3 years, then perhaps renting makes more sense for you. If, however, you don’t foresee a relocation within that timeframe, then you should definitely consider buying over renting.

Where do you want to live?

If you love the popular neighborhoods within walking distance to the Inner Harbor, Fells Point, O’Donnell Square, the Can Company, or other regional attractions, then you will be paying top dollar to rent. Of the 41 rental apartments listed in those areas on October 31, the average rent was $2,000 per month.  Most landlords will require that you provide a first and last month’s rent, pet deposit (if you own a small pet), fees for the Realtor® and for your credit report(s). You could easily be writing checks for more than $4,500 just to secure that prime rental you want. A $2,000 monthly rent means you will also be paying your landlord $24,000 without having any equity, and no housing-related tax deductions on your Federal income tax return.

What life changes may happen during that time: will you marry? Have children?

Nobody has a crystal ball, but most first-time buyers are considering the purchase for specific reasons. Perhaps they feel that they have reached a point in their lives where they want to start a family. Some may be far from settling down in the marital sense, but have had a landlord raise the rent every year and want some kind of security in their home. There are too many motivations to list, so what is the impulse in your life that is making you consider this move? Most likely you anticipate a change in lifestyle that will impact your daily routine for a few years. How much living space will that require? What other amenities would you want? Can you see that new life taking place in a home that someone else owns?

How long have you been in your job, and do you feel secure in it?

One of the most common reasons that first-time buyers have been hesitating to enter the housing market is uncertainty over the depth of the economic downturn, and whether their job is secure. Certainly if you work for a new start-up company, or if you have only been in your job a few months, this economy might not be too kind to your source of income. Buying a home might not make sense.
But in this region, there are a fair number of institutions and agencies of government — state, local and Federal — that provide stable, secure employment year after year. If you are in that situation, then you are in a prime position to capitalize on this most affordable housing market.

Do you believe that home prices in this region have stabilized?

Statistics for the Baltimore-Washington metro areas say “yes, they have.” It appears that we have hit a rough bottom that will bounce around a bit, but there isn’t any significant price depreciation at this time. Our inventory of homes for sale is decreasing, and the number of transactions are beginning to slowly increase. With supply falling and demand beginning to move up, basic economics would argue that we should start to see some modest price increases by this time next year. Mortgages are hovering at historic lows, in the 4% range. Add that to the mix, and it would seem that the most affordable time to jump into the housing market is now.

If home prices stabilized but did not increase over the next three years, would you be comfortable with the investment?

Whether you invest in stocks, pork bellies, or real estate, most professionals encourage the individual investor to take a long term view and not be too concerned about daily results. In real estate, while there is no market indicator to follow, there can be press releases every few days with contradictory results based on different locations. The importance of each bit of data can be confusing. Past long term performance of real estate as an investment indicates you should see a small rise in your home’s value over that period. But even if prices stay level, by making your monthly mortgage payments you will have been building equity in the property and you will have been reaping tax benefits from being a homeowner. You will not have been stuffing your money into someone else’s bank account! There are several online calculators to help you compare the economic advantage of buying over renting. I link to a particularly good one at www.rentorbuybaltimore.com.

Did you know that home ownership has been the largest source of individual wealth in American history?

Its true, and there have been many studies that quantified it over time. Buying a home is the largest monetary transaction that most people ever experience, and its the growth in equity in their home that provides the average American’s greatest source of personal net worth. As we move through the 21st Century, with retirement programs in jeopardy, home ownership and that source of wealth will become even more important in determining a retiree’s quality of life after leaving their jobs.

Would having professional assistance make you feel more comfortable in going through this evaluation process?

While most people buy and sell homes only a few times in their lives, professional Realtors® guide their clients through many such transactions every year. We can help you avoid some of the most common pitfalls, and represent your interests through the intense negotiations that can sometimes take place to deal with important issues. We can also recommend ethical, competent professionals to build a team — mortgage officers, title officers, home inspectors, and more — to make sure you have the best people working on your behalf.

However you decide to proceed in 2012, I hope you have a wonderful year and that its the first of many.

No one has been more affected by the last few years of real estate devastation than my old friends, the Sellers. If its been more than five years since you’ve sold property, then you really need to forget much of what you thought you knew about the process. Its a new world out here. So as we approach the beginning of the Autumn selling season, here are four points that every Seller needs to take to heart.

1. You were never as rich as “they” said you were. Who are “they”? Appraisers, bankers, even the algorithm at Zillow… but its not their fault. In most cases (except probably Zillow) they were giving you valuations on your home based on what was current market price. Unfortunately, most property owners took this inflated value and carved it in stone under the heading of “Personal Net Worth” and — even to this day — are having a difficult time adjusting to the fact that those monumental numbers just are not true. But if you own a stock and you want to sell it, you ask the question, “What is Triple Y Corporation stock selling for today?” Not last year. Not in 2007. If you try to place a sell order on Triple Y that is based on what the stock sold for in 2007, your stock broker will laugh you out of the office.

Selling your home works exactly the same way. And just like the stock market, that valuation is different today than it was three months ago, as values have continued to go down in most markets. If you list your home for sale today, you need to think about what the value of it is TODAY, and kiss farewell to what you thought it was worth yesterday. You’ll also likely have to re-think the asking price if you should be on the market in two months, because the market may continue to decline.

2. You are selling a product and a lifestyle — not just a house. You need to find out what the competition looks like. Get your Realtor to take you through the properties that you’re going to compete with in the marketplace — certainly every one of your potential Buyers will have seen them, so you need to see them too. The Buyer doesn’t really care how you’ve lived in the house, they want to see how they might be able to live if they bought your house. By comparing your home to the competition, you get to see the competing visions that are out there, and you can craft your product presentation to outshine the rest. This is the basic philosophy of staging, and you can use it to varying degrees, but if you’re not actively trying to change the way you think about and look at your home and trying to see it through the eyes of the Buyers who tour it, your home will likely be one of those that sit on the market for awhile, with multiple price reductions, and a sales price much lower than you had hoped.

3.  Some of your competition isn’t trying to turn a profit. Now, this is a tough one to wrap your head around if you’re a Seller. Every individual Seller approaches a real estate transaction with visions of finally-realized equity with which they will fund something, whether its a bigger house purchase, a downsizing with money left over for a new toy or a beefed up IRA, or at the very least, a clean balance sheet with debts paid off. In this market a significant number — if not a majority — of your competitors have already given up on making a profit. These could be residents approved for a short sale, or banks and mortgage companies — even the government — selling foreclosures, or people who have been on the market so long that they are desperate just to get to that new job in another city. This is yet another argument for getting to know your competition, and if you can’t compete with their prices, then figure that out before you list and save yourself a lot of heartache.

4. Buyers don’t shop for homes the way they used to. The process that Buyers use to become educated on the market has been completely revolutionized in the last few years. The National Association of Realtors conducts a study every year that asks successful homebuyers questions about the process of buying their home. The results are important because they point out the most successful ways to market a home — and marketing a home is THE most important task that a listing agent performs. In just the last decade, the percentage of Buyers who found the home they purchased on the Internet has skyrocketed from 8% to 37%. Those who found it in print advertising, such as newspapers, has gone from 7% down to only 2%, and if you look just at those slick homebuyer magazines, the current number is below 1%. Even the trusty yard sign, which accounted for 15% of discoveries in 2001 has declined to just 11%.

So, what does this mean if you’re the Seller? It means that among the most important qualities you need to look for when selecting a listing agent is that agent’s comfort level with mobile technology and the Web, because that is where most homebuyers are hanging out, looking around, and eventually deciding on which homes to visit. And don’t doubt that you DO need an agent. If you combine the Buyers who found their homes on the Internet and those who found them through the recommendation of their agent, you account for 75% of successful home purchases in 2010.

That’s a chunk of the marketplace that you must be able to access if you wish to sell your home in 2011.

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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As we begin the last month of the year, I wanted to review where we stand in the real estate world, both nationally and in Maryland. 2010 will be a critical year for many of us, not only for those involved with property, but for the economy in general.

We’re certainly better off in this holiday season than we were a year ago. At the end of 2008 the country felt like a roller coaster car speeding down the tallest slope with no brake and nobody at the switch. Right now, 2009 looks like the turning point, with the economy beginning its long climb up the next hill, real estate stabilizing and just in need of a little push to get back on the track. But there are several issues looming for next year which will really determine how things go for the forseeable future. Here are a few lumps of coal for your stocking:

• A recent Washington Post article quoted a national survey by the Mortgage Bankers Association which found that more than 14 percent of borrowers were in trouble on their mortgage. That translates into 7.4 million households either currently delinquent or in the foreclosure process, the highest level this particular survey has ever recorded. That means we have not seen the peak of foreclosures — and with unemployment continuing to rise the numbers will only get worse.
• The Baltimore Sun, again using information from the Mortgage Bankers Association, reported that in Maryland roughly 10 percent of homeowners deemed good credit risks were in trouble with their mortgage. We’re not talking subprime mortgages here, the widely known source of the financial troubles, but prime borrowers. Again, blame rising unemployment which has destabilized the family budgets of people who have had a history of prudent financial management. In round numbers, this adds 77,000 homeowners to the list of those at least one month behind on their payments.
• Recent widely reported gains in regional home sales and a decrease in the housing inventory seems to be coming from short sales and foreclosures going under contract (and not necessarily going to settlement). From my anecdotal sources, traffic on regular owner-occupied listings — where a bank is not involved — is practically non-existent. This means that unless you’re in distress and buyers smell blood, they aren’t interested in seeing your listing. And, as we saw in the last item, there could be 77,000 more properties on that distressed list that we have to work through next spring.
• Most of our buyers, especially first time homebuyers,  in the last year have used FHA loans because they had the least stringent requirements for credit score and money down, and allowed more generous assistance from Sellers. So while the extension of the tax credits until the end of June, 2010 is a wonderful thing, it seems to be coming with a simultaneous tightening of credit from the FHA. The Washington Post reports that new FHA guidelines currently under development will raise the amount of money required from buyers — from 3.5% of the purchase price to 5% of purchase price — while cutting the allowed Seller contribution in half (from 6% to 3%). Not only will this shrink the pool of qualified buyers considerably, the FHA will also raise the capitalization required from lenders who issue FHA insured loans — a move that will most likely cut the number of loans available, if not the number of lenders who will consider issuing them.

Certainly the situation in residential real estate is worrysome as we head into the new year. But it might not be the most dangerous. Many experts are warning that the biggest problem looming on the horizon is in the commercial real estate market, as last week’s potential meltdown at Dubai World illustrated. While that particular sovereign wealth fund made European markets tremble, and we were told that the US market has little exposure to it, there are enough potential problems here at home to make us weak in the knees. Moody’s Investor Services reported last week that it expects the value of US commercial real estate to continue to fall well into 2011. This is on top of losses in this sector which have already totalled 42.9% since the peak in 2007. The total devaluation from the peak may well reach 55% before things begin to turn around.

The determining factor in these losses? Yep, you guessed it… unemployment. With fewer people working, office spaces and commercial spaces don’t need to be as big. Demand for office buildings drops, and fewer companies are growing and demanding more space from their landlords. Also, with more people encouraged to buy homes and get their tax credit, demand for multifamily rental units has also dropped, hurting landlords’ cash flow and making it more difficult for them to keep up on their mortgages.

Now, with all this coal in your stocking, remember you can’t really burn it anymore to lower your heating bills. Global warming, you know. Ho, ho, ho.

It’s time for me to take a position on a controversial discussion beginning to take place around our offices, and in Washington.

Congress should act quickly to not just extend the Homebuyer Tax Credit, but it should also be expanded to cover more transactions and move beyond first-time homebuyers. Our marketplace is still very fragile. The real estate market, admittedly, was the starting point of this severe recession and needs to be supported so that the “tender green shoots” of recovery continue to grow and spread into next year. We will have new foreclosures entering the market, new short sales, and continuing economic distress long after the current expiration date of November 30. Its likely, in my opinion, that the housing market will shrink in the new year without this stimulus — which could jeopardize the health of the economy. The reasons for extension are perfectly clear.

The argument for expansion is equally compelling. First, the existing first-time buyer credit has jump started the under $250,000 segment of the marketplace, but in our area it has not had a similar effect on ‘move-up’ homes or ‘downsizing’ condominiums. To begin to spread the wealth, and help struggling homeowners out of economic distress, or the growing family feeling the pinch in a terrible economy, expansion of the tax credit to those segments would have an incredible effect on associated businesses and communities. There’s very little stimulus that would have the same impact for each dollar invested, not only in actual capital investments but also consumer sentiment, arresting the slide of home values and shoring them up against further upheaval.

In order to make the distribution of these monies is equitable, the eligible properties could be defined as those falling under the regionally adjusted FHA loan guidelines. That would effectively exclude investors and the very wealthy whose properties would require non-FHA ‘jumbo’ loans. This is an idea whose time is right now.

The stakes have gotten higher in the last few weeks. We’ve had a series of positive news releases; statistics are showing a strong turnaround in the housing market. Here are a few more… sales volume in my one real estate office nearly doubled in July ’09 over July ’08. We’re now at the point where in a few weeks the traditional Autumn selling season will begin, and the questions start to rise: will buyers come back after their summer vacations? Will we see continued support and recovery in the housing market on a sustained basis, or was the spring surge in sales simply a function of long pent-up demand bursting out briefly because of the $8,000 tax credit?

Economist Robert Shiller, he of the Case-Shiller Index, is a gloomster at this point. In a recent interview with CNN Business Correspondent Poppy Harlow, Dr. Shiller gave all sorts of reasons why the current uptrends in housing might be a mirage that will melt away in the desert heat of August. This interview, given before last week’s unexpected good news on slowing GDP losses and slight drop in unemployment, was based in part on the common wisdom of what these reports were supposed to be, not on the surprising results they actually gave. Which, in my opinion, only goes to show that economists have a tendency to trust their own predictions much more than anyone else does.

Certainly there are tough times ahead. But, there is a growing sense that the worst is behind us, and that is something that I believe is true. Now is the time for renewed investment in real estate, and for first time homebuyers to get in there and grab that $8,000 credit. Like “Cash for Clunkers,” its a government rebate that is working to give short-term and immediate stimulus to a devastated segment of our economy. It should be renewed to last into next year.

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.

Shades of 1929.

While the financial markets are involved in daily triple-digit fluctuations, major financial services companies are in danger of going under or being bought at fire sale prices, and economic statistics and Federal Reserve actions unseen since the Great Depression are being reported, the President of the United States is in front of the public saying that everything is fine. The State of the Union is strong. The danger is in over-correcting, like the proverbial pickup being driven through a “rough patch” and we don’t want to “end up in the ditch.”

At least Herbert Hoover could utter an educated, well-parsed phrase.

He ended up being just as wrong, just as short-sighted, and just as reviled by history as this president will be for being so insulated in his wealthy, privileged world that he had no clue that gasoline would soon reach $4 per gallon. “Really?”

The housing/financial mess was caused by a lack of oversight and regulation. Pure and simple. Each time I hear an explanation of mortgage-backed equity instruments, and how we got to this point, I’m reminded of the fictional Gordon Gekko’s mantra, “Greed is good.” Lots of people made lots of money, and most of them have gotten their golden parachutes and are no longer to be seen. We’re left cleaning up the mess while the buffoon in the White House (and his Republican clone campaigning to replace him) continues to assert that the least action is the best action.

There needs to be federal licensing and regulation of mortgage brokers, strict oversight of lending practices and the information given to prospective borrowers, and a revival of the Depression-era home loan bank so that the government can buy out the mortgages of people who were duped, lied to, or otherwise abused by the system and are now in danger of losing their homes. Let’s let the government rely on the strength and honesty of the working poor and middle class for a change, instead upon the greed and avarice of the upper 1%.