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

Several publications have reported disturbing trends, which may offer some insight as to why the Fannie Mae and Freddie Mac bailout has now taken place. The Saturday, September 6 issues of both the Baltimore Sun and Wall Street Journal reported an increase in late payments and foreclosure proceedings for PRIME loans, not the sub-prime loans that started this crisis rolling. It is this weakening of the payment record of borrowers previously considered A-paper — strong, qualified loans — that is the most troubling development. It also gives a sense of why the government felt it important to reorganize the two GSEs now rather than later.

The Journal reported that the worst states in the nation continue to be Florida and California, along with Nevada and Ohio. Second tier problem states included Maine, Rhode Island, Michigan, Indiana, Illinois and Arizona. All of these states had rates of foreclosures above the national average of 2.75%. The Mortgage Bankers Association reported that nationwide,  among mortgages on one-four family homes, over 9% were at least 30 days overdue or in the foreclosure process, up from 6.25% a year earlier. It was also the highest level since the Association started collecting figures 39 years ago.

Maryland, while not among the most troubled states, still has growing issues. Among these same “strong” borrowers, while we are among the states at or below the 2.75% rate of loans in foreclosure, the rate goes up to 4.3% when you include those who were at least 30 days late in their payment, according to the Sun.

Maryland looks worse when you turn to look at the sub-prime loans. According to the figures complied by the Federal Reserve Bank of Richmond (whose district includes Maryland), 5.84% of owner-occupied homes have sub-prime loans. Of those households, a troubling 10.55% are either in foreclosure or have already been foreclosed upon, and those houses are now sitting on the market for sale. Within the state, Prince George’s County is identified by the Fed as having the worst foreclosure problem. Other secondary foreclosure clusters pop up in sections of Baltimore City.

Fortunately there are blurbs of good news. On September 9th’s edition of PBS’ Nightly Business Report, the CEO of Coldwell Banker Real Estate confirmed nationwide what I reported a few days ago from my own experience — activity in the last few weeks has picked up in real estate offices around the country. With the bailout of Fannie and Freddie expected to make mortgages more affordable and hopefully easier to obtain, at least for a few months, we should be able to work out of some of the excess inventory and stabilize home prices. Not a moment too soon.

Most Realtors I’m in contact with on a regular basis here in Baltimore are seeing some positive signs as we head into autumn. August has been the busiest month this year, perhaps in the last several years. The phone is ringing, buyers are beginning to come back to the marketplace, and a few are even writing contracts. August, even in good years, can be slow because of family vacations and of the heat — who wants to see houses when its 95 degrees with 80% humidity in Baltimore? But this year, that didn’t stop people.

And in mid-August, the large new-homebuilder — Toll Brothers, Inc. — publicly released statistics that were some of the most hopeful we’ve seen in two years. Their quarterly guidance talked about a declining rate of cancellations, and signs of “growing pent-up demand” from people who have delayed buying while the market was crashing and financial institutions were imploding. (Wall Street Journal, August 14)

We’re not out of the woods yet, as today’s continued bad news from Freddie and Fannie clearly remind us, but its nice to see both local and national signs that we *may* finally be bottoming out.

You have to feel sorry for Ben Bernanke… He finds himself in the unenviable position of following one of the most well-known and (still) respected Fed Chairmen in the history of the organization. But you especially have to sympathize when the aforementioned Wise Old Man criticizes you in public.

A recent headline in the Wall Street Journal — page one, above the fold — said it all. “Greenspan Sees Bottom in Housing, Criticizes Bailout.” Ouch.

Now, I’m pleased that someone of Mr. Greenspan’s reputation sees the end of this coming in the next few months — actually sometime in the first half of 2009. (I think Baltimore is in the process of seeing it now, but that’s just my opinion.)

The real knife in the back came later in the article where Mr. Greenspan takes issue with the entire Fed-backed, Treasury-backed bailout of Bear Stearns and Freddie and Fannie. The two mortgage giants, the Government Sponsored Entities (GSEs) Fredde Mac and Fannie Mae, should have been nationalized, he argues. Shareholders should have been wiped out, assets taken over, and their function split up into as many as ten separate entities and then sold off to individual investors.

Ya know, at this point, I don’t think that TOTAL reliance on the private marketplace would reassure ANYONE. After all… wasn’t it the private marketplace that got us IN to this mess in the beginning?

If you’ve noticed that the rental market seems to be tightening, you’re right on the money.

In a survey taken by the National Multi Housing Council (as reported in The Real Estate Professional, a trade magazine), the owners of the nation’s largest apartment buildings are confirming that occupancy rates remain high and that the number of tenants moving out to become homeowners is very low. More than 80% reported a significant decrease in the number of renters leaving to purchase their own home.

But the number of tenants moving from investor-owned properties into larger professionally managed buildings has increased, most likely because of rising foreclosure rates on investor-owned buildings.

Obviously, for the housing market, this isn’t good news. New homeowners coming into the market are the ones that allow current homeowners to sell and move up, setting off the domino chain reaction into bigger and more expensive houses. Government policy makers who are looking for ways to shore up housing need to take a look at this statistic and work on encouraging the renters to take the leap.

You have to wonder if the American public has truly entered a post-reality era… maybe all the fake reality shows on television have finally had their mind numbing effects, proving to anyone who was paying attention that reality isn’t and it is all based on your attitude.

That’s about the only conclusion you can draw from the result of a recent poll by Harris Interactive, commissioned by our old friends at Zillow.com. They got answers from 1,361 homeowners across the country, and (as reported in a recent Wall Street Journal) a whopping 62% of the respondents thought that the value of their home had actually increased in the previous 12 months.

That’s right. INCREASED.

Never mind that Zillow’s own terribly flawed and unreliable data (see one of our previous posts) shows that 77% of all homes in the US depreciated in value over the same time period. The poll was conducted between June 30 and July 2, 2008, so maybe people’s brains were just overheated from hot summer weather. But 56% of the respondents also said that they would be spending money to improve their “more valuable” properties over the next six months.

The “can’t happen to me” psychosis gets even deeper when you probe the public attitude toward the foreclosure crisis. Even though 90% of the respondents knew that foreclosures were occurring in their local market and 80% felt that the rate of foreclosures would remain steady over the next six months… a full 48% of them opposed government efforts to assist such homeowners to stay in their homes.

What should those of us in the industry make out of such “Twilight Zone” attitudes? We will have to try harder to educate potential Sellers, and perhaps take them on preview tours of the competition to fight the idea that their property is the “best in the neighborhood.” Like addicts coming off of a pretty good high, homeowners still aren’t ready to go “cold turkey” and realize that real estate investments sometimes go down. Including their own. We can either support their addiction and continue to list properties at unrealistic prices, or be the ones to stage an intervention and tell them the truth.

I think our Code of Ethics compels us to be the truthteller.

There are some morsels of good news, even encouraging trends, in the current housing downturn. As the inventory of unsold Mini-Mansions on tiny lots that used to be cornfields grows, and major builders tighten their belts and lower profit forecasts, there is emerging a trend toward smaller, community style, energy efficient homes. No, this is not the Disney-esque Plantation, Florida model of community where Stepford wives patrol the sidewalks with big smiles.

A recent Wall Street Journal article reported the success of two developers in the Pacific Northwest who have taken to designing 1,000 square foot cottages, on small town-size lots. Over the last ten years, these pioneers have made a good deal of money building about fifty Craftsman-style cottages, ranging anywhere between 800-1,500 square feet. Think 1920s-style “bungalow courtyards.” These homes, all within a comfortable commuting distance to Seattle, were built in various communities and surrounding a “commons” shared by all the residents.

They can’t build them fast enough.

Who is buying these? Certainly NOT first time homebuyers, since they are significantly more expensive per square foot than the usual tract mansion. In many cases, they are refugees from the modern American suburb, willing to downsize significantly to be able to buy into a real community, where people interact with their neighbors and they can lessen their carbon footprint. Not to mention lowering their energy usage and utility bills.

Builders in other parts of the country are taking notice. Boston and Indianapolis are on track to get similar developments in the coming months, as the children of the baby boom start to look for new ways to organize society and step back from the expansive post-WWII style of suburbs that chew up forest and farmland at ridiculous rates, cause an expansion of utilities and infrastructure that become expensive to maintain and use, and cost time and money in commuting longer distances.

If this disruption in the housing market and the concurrent rise in energy prices can have the effect of making dramatic changes in the way America houses its population, then perhaps some of the pain will have been worthwhile.

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?!

The current uproar of recriminations over the supposed financial instability of FannieMae and FreddieMac — the two pillars of America’s residential mortgage industry — is designed to obscure the growing problems in the private banks and lending institutions who have made a colossal mess out of our financial system. Its so much easier to take issue with the way the Federal Government has organized the semi-public institutions. And its so unpleasant for business-oriented Republican politicians to admit that the lack of regulation and public oversight in the financial markets has AGAIN led do a massive failure. This one may just dwarf the financial mess that the LAST Bush presidency created.

The fact is that human nature tends to excess. When you can make a gazillion dollars by bending time-honored and respected lending rules, why not bend them a little further and make a billion gazillion dollars, eh? Government in a democratic society is supposed to rein in the excess and even out the greed of human nature. When “small government” Republicans get in power, they throw rules to the wind and pray to the gods of the free market to take care of it. This is the result.

We can at least hope that new rules will be written that will be even more effective than the last. Perhaps that’s too optimistic, but I will always tend toward the healthy balance of rule, regulation and invention. Because my living, my career, my livelihood depends upon this mess getting sorted out and put right, as soon as possible. So does the economic stability of millions of similar middle-class Americans who just want to make sure that they can have access to their deposits and qualify for a mortgage. Its not that much to ask of a government.

One of the issues that will be growing in importance over the next years will be the cost of commuting. In the past, its not been something that most buyers considered as a major concern, but $4 or even $5 gasoline will add significantly to a monthly expenditure and will have to be taken into consideration when a family is moving up or out.

I haven’t seen anyone really talk about the potential for a radical re-shaping of American society and the physical landscape, but imagine an America where the fringe suburbs de-populate as people are forced by their pocketbook to move back closer into the cities that provide their basic employment and social infrastructure. The homebuilders will either see the changes and adjust to rebuilding older city neighborhoods, or focus only on the upper-income segment who can still afford to commute in their Hummers and Expeditions to their gated, golf-oriented communities. In this scenario, a city like Baltimore with significant opportunity for redevelopment inside the city limits can truly prosper, but only with a significant investment in public transportation.

This is also an opportunity to plug a function of charmcityrealestate.com — a cost of commuting calculator that helps factor commuting cost into the purchase decision between two properties. I invite you to play with it, see how it works, and how surprising the comparison now is when driving is factored in. Welcome to a new America.

During the Real Estate Boom of a few years ago, we were constantly bewildered by the consumer’s fixation on the APR of a loan. Seasoned real estate professionals were constantly trying to educate our customers and clients on the fact that the overall interest rate was not the only factor to consider when getting a loan. Given what’s taken place in the last couple of years, with these incredibly low rate loans adjusting into the stratosphere, I wish that more people had taken the advice seriously.

Consumers now are making a similar mistake. This time, they are focusing solely on the price of real estate. Buyers are sitting on the sidelines waiting for the prices to fall, and those that are braving the market are ruthlessly low-bidding on properties that are well-priced just to see how desperate the owners are for a deal — while interest rates have begun to rise.

Those consumers who think that by focusing on the price of the property they are guaranteeing an affordable purchase need to think again. Most experts expect interest rates to continue to rise to the end of the year, and it does not take much interest rate movement to wipe out the perceived savings gained from lowballing a seller. Once again, real estate professionals have to educate their prospects on the dangers of waiting too long. Let’s hope we do a better job this time.