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?

While the market has been flooded with good news in the last few weeks, an end of the year reflection still shows we have lots of work to do in the new year.

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

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.

A drop in consumer confidence frustrates the market as autumn settles in and buyers disappear.

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

Most real estate and mortgage professionals I’m acquainted with have had a disappointing autumn, at least as far as first-time homebuyers are concerned. When Labor Day had passed, we all felt that the Fall Market would bring a crush of new buyers who would be eagerly cramming our hallways to get a look at homes so that they could settle in time to qualify for the government’s tax credit. And in the first two weeks of September it started out that way.

And then something happened. No one is sure exactly why, but the enthusiasm waned. Interested buyers decided to postpone their search, or just disappeared altogether. Then in October the statistics — which always lag the event — started to shed some light: consumer confidence was starting to drop again. What was the reason?

The economy was continuing to shed jobs in numbers that, although declining, were still worrysome. But that had been the case throughout the summer, when the numbers were much bigger, and the buyers were out in force then.

September was colder and wetter than normal, and put everyone in a wintertime huddled pose on the street. But would chilly days be enough to keep interested people from getting money back from Uncle Sam?

Controversy erupted over whether or not the tax credit would be extended into next year, or even broadened. But would that cause people to postpone, or to hurry up and make sure they got theirs — just in case it went away completely?

Or, was it something even more personal? Was it the fear that began to seep into people’s minds as epidemic reports started to fill the news, and more untimely swine flu deaths caught the attention of the media? Certainly, most first-time homebuyers are going to be in the age group that has been identified as the most susceptible to this particular flu bug.

Its unlikely that we will ever have really clear data. But I’m putting my money on the pigs.

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 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 .

First of three podcasts presenting an overview of the material presented at an in-person buyer seminar. In this episode: evaluating and selecting your real estate agent and loan officer.

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

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