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

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.

Who says you have to be depressed during the greatest economic catastrophe since the Great Depression?

Three international researchers recently announced that they have used a mixture of economic, industrial and Gallup poll data to rank the individual US states by happiness level. Their resulting study, which will be published in the December issue of the Journal of Research in Personality, crowns Utah as the happiest state in the Union. And you wondered why all those gleaming smiles were wandering around the Great Salt Lake! The most unhappy of our nifty fifty is West Virginia. Perhaps it has something to do with all those incest jokes at their expense.

The study measures physical and emotional health, overall satisfaction with the respondents personal and professional lives, and how they view the possibilities of the future. Their findings discovered a direct correlation between higher happiness scores and more concrete measurements of education, wealth, diversity and a larger proportion of creative occupations — you know, the giddy artsy types like artists, architects, writers, teachers, engineers, scientists, and so on.

You know… I don’t think I would ever have defined an engineer or a scientist as one of the artsy occupations. Lets hope they start to buy houses soon and make the rest of us even happier.

Anyway, where is Maryland on the list? Actually higher than you think! Maryland ranks as number 6, the highest ranking of any east coast state. The top five are all in the west or midwest, and we beat the pants off of all of our neighbors — not just the Mountaineers. Virginia is closest to us at number 15; Pennsylvania is way down at number 32; Delaware moans its way to number 36.

So, the next time you find yourself thinking that the grass is greener on the other side of the … border — any border, just pick one — smile and remember the value of all those wild and crazy mechanical engineers, and all the joy they bring to your life.

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.

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.

Second of three podcasts presenting an overview of the material presented at an in-person buyer seminar. In this episode: searching for the right home and writing the offer to purchase.

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

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This is the time of year when people just sit inside during the dog days of a southern summer. High humidity, hot temperatures, and a city where not everything is air-conditioned all combine to slow down real estate activity. Even in good years, beach vacations and summer camps tend to slow down every business, and ours is no exception.

But this year is not so bad. That’s an incredibly good sign, given the market slump we’re coming out of. Federal homebuyer incentives are encouraging traffic through listings, and a wary sense of confidence that things are slowly getting better are having an overdue good effect. Cross your fingers that the fall market, which usually starts about Labor Day, will come roaring back.

I’d write more, but its just too hot.

I don’t usually lift large sections from local media, but this article in the Baltimore Business Journal by Rachel Bernstein, caught my eye:

Baltimore was named one of the top cities for young professionals to work in, based on cost of living, educational opportunities and the city’s nightlife.

The survey was conducted by Madison, Wisc.-based Next Generation Consulting. The report broke down cities into three population categories — Baltimore in the largest city category for those with more than 500,000 people — and evaluated them based on assets the report deemed as important to 20 to 40 year olds.

Among the other cities in Baltimore’s category, San Francisco was named No. 1. Baltimore was named No. 7, beating out Portland, Ore., New York City, Chicago and Los Angeles.

The seven indexes of a top city, or “Next City,” are average earnings, dedication to education, cleanliness of the city, around town, nightlife, cost of lifestyle and safety and diversity of the
population, according to Next Generation Consulting.

Baltimore residents have historically had an inferiority complex about their city compared to their more cosmopolitan neighbors in Philadelphia and Washington. But in the last ten years, the city skyline has grown and spread across acres of what once were parking lots and hinterlands. Neighborhoods have revitalized, and a burgeoning arts and entertainment scene has developed — whether its theatre in Mt. Vernon, fine arts and art galleries in Fells Point and downtown, or live music in Fells Point. Baltimore now has one of the most heavily populated downtown areas among cities its size, with the re-development of old office buildings into modern apartments and condos and the return of grocery stores and even big box retail to the Inner Harbor. And never forget about the added life that the tens of millions of Inner Harbor visitors, sports fans, half-dozen new hotels, and an expanded convention center bring to the city.

Baltimore’s affordable housing certainly provides one of the most important boosts to this type of favorable publicity. People can afford to live here, and live well. That’s a message that really needs to be told, and its studies like this that will tell it better than an ad campaign or promotional gimmicks that the public doesn’t always trust to be accurate. Young, first-time homebuyers have been the rock on which the budding recovery of our housing market is being built — the very buyers that are covered in this survey. The timing couldn’t be better for this type of news.

Baltimore is moving from the classification of “big small city” to “small big city”  and its about time.

Its been awhile, but in many markets in the United States it is once again a no-brainer to own a home. According to a recent article in the Wall Street Journal, the financial advantages of owning had been dwindling over the last few decades. Evaluated nationally, after tax mortgage payments have been averaging over 25% more than rental payments for nearly 26 years, according to a California real estate consultant firm. In 2006 some metro areas saw that grow to as much as 66% more. But, after the last few years of housing meltdown, average montly rent for the largest fifty metro areas was $1,045 while the after tax mortgage payment was $1,300, the narrowest gap (24%) since 2001. Some mortgage professionals have estimated that if mortgage interest rates fall to 4.5%, a number often seen as possible in the next few months, the gap will narrow even further to a 1998-era 14%.

A study by Moody’s Economy.com gives even better news. They have found eight markets around the country where home prices relative to rents are within 5% of historic levels, leading one of their economists to predict, “The bottom is coming into view.”

While we’ve heard that phrase before over the last few years, its nice to have a fresh reason to believe it might be true this time.

January is normally one of the worst months for real estate activity, for good reason. Cold, snow, and other seasonal hangovers do not translate into a busy market. So, its a hopeful sign that there have been some positive news stories in the last few days. First, home inventory levels dropped in December — not as much as in years past, but the fact that they dropped at all in the current climate is good. Fewer homes on the market means a tighter supply and some price stability returning. According to the monthly ZipRealty survey, Baltimore’s inventory level dropped nearly 6%. The other hopeful sign came out just yesterday, when December sales of previously owned homes were released by the National Association of Realtors. According to their data, home sales in December rose a robust 6.5% during the month on a national basis, the biggest monthly jump in nearly seven years.

Many of these sales, no doubt, were sales of low-priced foreclosures, but far from discounting the good news, I think that actually is incredibly positive. First, we need to eliminate the foreclosures from the marketplace before we will see prices begin to stabilize on occupied homes for resale. Second, these sales mean that investors are finally returning to the real estate market, since they are the buyers most likely to purchase a foreclosure for repair and rental purposes. Lastly, clearing the market of foreclosures will stabilize the lending institutions that have taken possession of them, and hopefully begin to unfreeze the credit markets for other qualified buyers.

Will any of this happen in the short term? Of course not. But the latest good news might mean that we’ve taken a few steps down what will definitely be a long road. Its a start.

Its mid-December, the darkest time of the year. Ancient cultures always had a Festival of Lights about this time of year, trying to lift spirits and look forward to the longer days and sunnier dispositions of spring.

So, perhaps it was a glimmer of light that came across the newswires this morning as the ZipRealty housing survey was released for November, showing that housing inventory in many metro areas, including Baltimore, shrank considerably for the month compared to inventory in October. Nationally, the traditional shrinkage of housing inventory from October to November averages just under two percent. But this year the national average was closer to 10%. The Baltimore numbers were just under 4% shrinkage.

Fewer homes on the market should result in some home price stabilization, especially as we move into spring. That, tied in with the pent-up demand I’m seeing in my practics — so many people just waiting… waiting for some kind of good news that will spur them to enter the market to sell, buy, or both — gives me some cautious optimism that once the bad news is all out we will have the beginnings of a recovery. That’s a holiday gift we could really put to use.