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

The Senate of the United States has passed legislation that not only extends the $8000 tax credit for first time homebuyers, but that expands the stimulus and offers a $6500 credit for current homeowners (who have been in their homes at least five years) to sell and move up into a new primary residence. Both of these would be available for contracts ratified by the end of April, 2010 and that settle before the end of June.

When I called for the extension and expansion of the credit in this blog a few months ago, not many of my colleagues gave the proposal much chance of actually coming to pass. Thank goodness there was one civic minded Republican and former Realtor, Johnny Isaacson from Georgia, who was able to give a bi-partisan impetus to the measure and who has championed it through. The House of Representatives now must pass the bill and send it to the President, who has indicated he will sign it.

Hopefully this will coax skittish buyers back into the market, and give encouragement to the many families who are sitting tight in their now-too-small homes to jump into the real estate market to move up.

Housing led us down into this mess, and in order for public confidence to stabilize and for people to start feeling better about the economy, housing must lead us out. This bill is good, public-spirited legislation that points out the constructive role that the government can play in economic affairs, if politicians could simply get their own ambitions out of the way. Its too much to hope that this effort will lead to other bi-partisan efforts. But that is what the country needs right now.

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

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

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.

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.

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.

I have a shocking, truly shocking, piece of information to give you. You better sit down.

2007 was the fifth best year on record for housing sales.

That’s not just hot air, that’s factual data from the National Association of Realtors. Now, I grant you, as someone who makes his living in the real estate industry, it shocked me to read that. It certainly didn’t “feel” like good times. My accountant will confirm that it certainly wasn’t MY fifth best year.

Regular readers of my blog will know that I have regularly taken issue with the way the media has painted the crisis in the housing industry… which really started as a crisis in the MORTGAGE industry. But the NAR statistics seem to confirm something that has been noted for many years — it is no longer fruitful to treat the US economy as one monolithic entity. We are a collection of regional economies, and whether it was the “rolling recession” in the nineties that seemed to affect only a region or two at a time, or the current housing situation, there is an argument to be made that much of the pain is centered in a handful of regions.

Recent stories in the Wall Street Journal have shown maps showing where the foreclosure rate has spiked, and a story on National Public Radio this morning (4/16) talked about a critical drop of 24% in housing values in Southern California. But there have been relatively few stories about the strength of housing in certain markets like New York City. I’m going to speculate that the housing markets are worse in areas where the economic trouble is deepest. (Not a high risk speculation, to be sure.) The mortgage/financial industry disaster is certainly having a national ripple effect, but the breathless disaster coverage on the 24-hour news networks, loves to paint a national picture where one really doesn’t exist.

The newspapers — normally a bastion of more thoughtful coverage — seem to be trying to compete with the television networks over who can cry the loudest. None of which is in the best interest of the country. Everyone wants to put their own political spin on it as well, whether its a conservative Republican laissez-faire approach (from the mouth of John “Herbert Hoover” McCain) or the more reactionary, desperate Clinton Campaign (Tell the banks when they can and can’t foreclose! Prohibit them from adjusting their mortgage rates on schedule! Shoot ducks! Drink beer!)

I wish we’d all just act like grownups.

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%.