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

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?

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.

A special non-profit foreclosure workshop, “Save the Block Party” (www.savetheblockparty.org – official event website) is coming to Prince George’s County, MD on Saturday Sept. 13 from 10:00 a.m. to 6:00 p.m. EST.

The event co-sponsors are the National Community Reinvestment Coalition (http://www.ncrc.org/) and the HOPE NOW Alliance (www.hopenow.com).

This is a unique opportunity for families and homeowners facing foreclosure or late on mortgage payments to meet in-person with professional financial advisors and representatives from the nation’s major lenders. Full details are as follows:

What: “Save the Block Party” Foreclosure Prevention Workshop

www.savetheblockparty.org

Questions and Directions: 1-800-846-0140

When: Saturday, September 13 2008 – 10:00 a.m. to 6:00 p.m. EST

Where: Watkins Regional Park, 301 Watkins Regional Park Drive, Upper Malboro, MD 20774

Lenders: Representatives from most of the nation’s leading lenders

RSVP: First-come, first served – arrive early, space is limited! Suggested early arrival two hours BEFORE the event begins without reservations.

Homeowners who need help, but are unable to attend the event, are encouraged to:

· Contact the HOPE NOW Alliance at 1.888.995.HOPE (4673)

· Contact their lender directly

· Access free information about options and alternatives to foreclosure at www.HomeSafePMI.com

Background:

According to a January 2008 study published by Freddie Mac, fewer than 50 percent of homeowners contact their lender prior to entering foreclosure. PMI Group’s non-profit workshops have successfully helped hundreds of families to keep their homes with specialized mortgage workout programs and unique financial arrangements.

In a casual, sit-down conference with a lender, homeowners can find solutions to foreclosure they often are unaware may be available to them.