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

2010 has been a challenge to the real estate market, not only because of the mortgage foreclosure crisis, the up-and-down recession, and the crisis in consumer confidence. Its also had some of the most extreme weather we’ve seen in a generation. How is that a challenge to the market?

Well, think about it… when the area was blanketed by back-to-back blizzards and many city streets were nearly impassable for two weeks, who could go out and show property? There are still damaged gutters and dormers scattered throughout the city’s neighborhoods. If the winter wasn’t bad enough, we’ve now had 40+ days this summer where the afternoon temperatures reached 90 degrees or more — many of them over 100 degrees. People stay inside when the heat is that oppressive and don’t go out and look at property.

Its a shame that buyers are letting the summer pass them by. Prices in the Baltimore area are still declining in many neighborhoods, and according to June statistics, Baltimore was one of only two major metro areas where prices had not stabilized or even started back up. Also, mortgage rates have declined to the lowest level that we’ve seen since 1971, when records were first kept on that statistic. So with prices declining and mortgage money cheap, why aren’t more buyers scooping up bargains?

Knowing the Score
A report came out this month that gave one possible reason. The economic troubles that we’ve been experiencing in this country have lowered significantly the average credit score. FICO, Inc., the company that calculates your credit score by combining data from the three large credit monitoring companies, announced that now 25.5% of consumers have a credit score of 599 or below. Before the recession, that figure generally averaged about 15%. That means that the great terms and historically low rates we’ve been seeing on the news are now unavailable to over a quarter of the population. Some analysts expect that before we truly recover from this recession that figure will rise to nearly one-third.

This is the segment of the population that, in the past, had to rely primarily on sub-prime mortgages to be able to get into the housing market. That area of lending has pretty much dried up in the last couple of years. Wells Fargo, currently the nation’s largest mortgage lender, made news this month by completely shutting down its sub-prime lending division and laying off over 3,000 employees. But although sub-prime now has a bad smell attached to it, remember that was primarily because of the way that Wall Street and large financial institutions had cut up, combined and re-packaged sub-prime mortgages into investment securities that weren’t at all clear on the level of risk they carried. Sub-prime lending had existed as a viable, profitable product for years before this recent mess started.

It doesn’t make sense that the housing market will ever regain robust health while we are content to tell 25-30% of the population that they are not able to own a home. If you are thinking of buying your own home, its important that you find out what your FICO score is, and how that will affect your status as a borrower. There are steps you can take to mend a low credit score, and a qualified mortgage officer or any of the local homebuyer counseling agencies can help you get started down that road.

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 charmcityrealestate [at] verizon [dot] net.

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.

There was a populist backlash to the President’s housing initiative last week, with an unlikely leader. A cable-TV commentator known for his rants, Rick Santelli of CNBC lost his cool again when describing the package of mortgage revisions that the Administration hopes will put the housing market back on the rails, stabilizing it and cutting down on foreclosures while keeping as many people as possible in their homes. As if to add some kind of justification to his nonsense, Mr. Santelli turned to the traders on the floor of the Chicago Board of Trade for support and used their obedient chorus of catcalls as proof that “average America” didn’t like the President’s plan.

Later, as a guest on Chris Mathews’ HARDBALL, Mr. Santelli went further, advocating that people in trouble simply be allowed to fail. He added, dramatically, that he’d be willing to “bite the bullet” and let both of his neighbors go into foreclosure if necessary because he wasn’t planning to sell his home. He would ride out what he considered the small amount of collateral damage to his home or his neighborhood, because he wasn’t planning to sell anytime soon. The next day, on the same program, he began to finally tip his hand when he used the term “redistributionist” to describe the goals of the plan. Mr. Mathews moved in for the kill: it turns out that Mr. Santelli is a Republican who voted for John McCain.

Mr. Santelli engaged in manipulative, insincere populism, and his premise and description of the results were simply wrong.

I’m sure that in the lovely upscale suburbs of New York and Chicago, the million dollar plus homes on large lots could indeed survive several foreclosures without significant hits on property values. The neighborhood probably won’t see an  increase in drug havens, increasing street crime, physical deterioration, or other negative results. Investors won’t swoop in to snap up the lavish homes, slap on a new coat of paint, and then stuff them full of tenants who have no ties to the neighborhood and have no real stake in maintaining it. In short, I’m sure that in Mr. Santelli’s neighborhood he could let the country’s housing market go down the toilet without too much discomfort. It makes it very easy for someone in his position to wrap himself in populist rants of “unfairness” to thwart a solution that will mitigate the terrible consequences for the rest of us.

So, Mr. Santelli, since you’ve made it clear you don’t give a damn about the rest of us, why don’t you just go back to your lovely home in your lovely neighborhood, build a very, very, very tall fence, buy lots of assault rifles to fortify the ramparts, and never come out again. I can tell you that the rest of us will not miss you.

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.

Jay Leno does a series of jokes in his monologues with the premise that “I don’t think President Bush gets it…” and then goes on to crack wise on some verbal misunderstanding. But, more and more it seems clear that the current administration really doesn’t get a lot of things.

Like this news item, in an article in the Wall Street Journal written by James Hagerty, which covers the Department of Housing and Urban Development (HUD) introducing new forms and procedures to be followed at settlement “because ‘many people made uninformed decisions’ in taking out loans.’”

While I will agree that is the basis of many of our current mortgage related problems, putting the new “solution” to the problem at the settlement table shows a complete lack of understanding of the process. HUD needs to be more proactive and regulatory about the way the loan officers and mortgage brokers *sell* the loans on day one. By the time we sit down at the settlement table four or six weeks later, too much money has been invested, too many plans have been set, and the moving vans are waiting at the doors. To think that a buyer is going to be able to stand up and stop the entire process at that point without an enormous disruption and legal proceedings commencing proves that they just don’t get it.

Regulation has its place. And unless HUD is willing to step in and look over the shoulder of the loan officer during the loan application process, the root of the problem is not going to be addressed.

Replacing the old HUD-1 form could be a blessing if the new form is less confusing than the old one, but somehow I’m skeptical that it will be. Like I said, they just don’t get it.

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.

We’ve been told for years that our society has become too statistic based, and that the business-governmental apparatus that collects information on all of us is too large, too intrusive and overly bureaucratic. And in some aspects of life, I think that’s absolutely true. So its a total shock when you come across situations where we are completely incapable of getting a clear picture of what is going on. Certainly the current scare about the source of the salmonella outbreak is one of these cases. Two months into it, we have no clue about the source of the little nasties, and an entire agricultural industry is in shambles because of early — incorrect, we think (?) — guesses.

You’ll be surprised to know that this applies to the foreclosure crisis. An article in today’s Wall Street Journal (Friday, July 18, 2008) reports that there are many contradictory statistics about the “Mortgage Mess.” Three major companies publish data on mortgage foreclosures, but the way that they collect it and the frequency with which they take their surveys has a major effect on how the data is interpreted. There is NO federal regulator charged with regulating mortgage brokers and originations; no one collecting the data for the government, so the Congress’ Joint Economic Committee (you know, the committee drafting legislation on the issue!) is reliant upon these three companies and their confusing information.

In the words of the Journal’s reporter, Carl Bialik, “All the data providers agree that foreclosures have been increasing, but details matter in deciding which kinds of loans, in which places, are at highest risk.” The track record of some of these companies’ press releases is shoddy. Again, quoting from Mr. Bialik, “Last July, the system” employed by the best known of the companies, RealtyTrac, “stumbled in Georgia, counting some properties multiple times. The company had said filings rose 75%, but revised that figure to 14%.” Oops.

What do you bet that this sharp downward revision to 14% didn’t get the same screaming above-the-fold headline that the original shocking 75% figure did?

The companies also do not agree on where the mortgage hot spots are. Several states appear on all three companies’ “top five” lists, although their ranking varies. But other states pop up on some and not others. The state of Colorado, for instance, regularly appears at or near the top of RealtyTrac’s recent rankings, but squarely in the middle of the pack on the other two company’s rankings. The Mortgage Bankers Association complies its lists quarterly, so by the time its information is released the data is old news. RealtyTrac, by comparison, races its monthly data out in 8 or 9 days — perhaps the reason it can be so dramatically revised. The third company involved is First American CoreLogic, which doesn’t race its data out and doesn’t issue press releases.

Let’s hope that cool, competent analysis of accurate data results in the best legislation possible to deal with our impending foreclosure crisis.

Pshheft. Who am I kidding?!