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November, 2006 through December 2008.
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.
Missing the Point
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.
Equalize the Burden
A recent Viewpoint essay by Keith Losoya and Paul Warren in the Baltimore Sun have brought to light and incredible and outrageous fact: “Baltimore is one of only three large cities in the United States where the disparity between residential and business property taxes is so great the homeowners are, in effect, subsidizing commercial enterprises.”
The real estate industry has been warning the government of Baltimore City for nearly a decade that the city’s rebirth, growth, redevelopment and repopulation are seriously jeopardized by the enormous difference in property taxes between the city and the surrounding county. City residential property taxes MUST be lowered, substantially, in order to bring residents back from the suburbs and keep the new residents within the city limits.
But this revelation — that they COULD be substantially lower if commercial property taxes were brought more into parity — is especially galling. The Sun opinion piece used three adjacent rowhouses on Park Avenue in Mt. Vernon as an example. These three houses were constructed simultaneously and have significant interior space. One is residential condos, valued together at $830,000 for tax purposes. The next two are residential rental apartments. So on the surface, you’d think that they should have similar values. Yet one is valued at $309,100 and the other is valued at $231,800. No where close.
Now, I know that rental apartments are probably not in as good condition as a renovated, condo conversion. But certainly those buildings in their current situation are worth more than THAT. The authors of the essay have researched the disparity and estimated that in the last six months of 2007, the “average underassessment” of 118 commercial properties that changed hands was over 23%, which would add up to nearly $75 million that the city is NOT getting. That’s only on 118 properties!
The Mayor may not be in a political position to piss off the commercial property owners given her own troubles right now, but certainly the citizens and the City Council should take note of this and demand action to take the political heat and spread it around a bit. Otherwise the citizens would be justified in rising up to force the issue.
At the Bottom?
More and more real estate professionals are chiming in that they believe we are at or near the bottom of this housing downturn. Last week Standard & Poors’ economist Karl Case (he of the S&P/Case-Shiller Index of US Housing Prices infamy) noted cause for optimism. In a paper he presented before the Brookings Institution, he noted that of the 20 metropolitan areas covered by the Case-Shiller Index, nine have shown improvement in pricing in recent months. This gives him some hope that price stabilization is coming sooner rather than later (which is what his famous counterpart, Robert Shiller, is predicting).
Who is right in this battle of opinions can make a huge difference to the American economy. If Professor Case is correct and we are at or near the bottom, losses in mortgage foreclosures should stabilize somewhere around $500 billion. If prices come down another 10% that can boost the total losses in the mortgage fiasco to nearly $650 billion, which could have a significantly more serious effect on the national gross domestic product and the continued sick health of lending institutions. We need to hope that Professor Case got first billing for some substantial reason, and that he turns out to be correct.
Overdue Mortgages Grow
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.
Signs of Hope
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.
Et tu, Alan?
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?
Renters Not Moving Up
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.
Are They Paying Attention?
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.
If You Built It...
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.
Accurate Stats Would Help
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%.”
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 Fannie/Freddie Follies
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.
The Cost of Commuting
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.
Keeping an Eye on the Right Ball
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.
Condo Conundrum Continues
An article in the May 29th edition of the Baltimore SUN updates local real estate devotees to a danger that I first blogged about nearly two years ago, i.e., that the Baltimore metro area was in line for WAAAAAY too many condo projects to be healthy for this marketplace. The SUN article focuses on two developments in particular as having a large number of cancelled contracts, or difficulty in settling: The ultra-high-end Ritz Carlton on the Inner Harbor and 414 Water Street just a few blocks from the water in downtown.
Fortunately, since my original blog post, several condo projects have been postponed, cancelled, or converted into rental developments with a higher retail component than originally conceived. But we have more on the drawing board, such as the other ultra-high-end Four Seasons slated to go up in Harbor East.
I hate to parrot ‘common wisdom,’ because it usually smells of a lack of imagination, but when it comes to the Baltimore condo market there is a basic truth behind it. Baltimore is not, has never been, and may not be for quite some time… a condo town. Our housing market is *still* the most affordable of any northeastern city. Condominiums will still be attractive to the empty nester market (probably the main draw of the aforementioned ultra-high-end developments) for some time to come. But in other cities one of the main draws to condos is as an entry point to home ownership for younger buyers who can’t afford either a single family detached or townhouse dwelling. Baltimore is one of the few cities I’ve known of where there have been condominiums on the market with asking prices higher than the surrounding housing stock. Talk about being ‘upside down’ in a home… and then paying condo fees on top of it!
Real estate developers sometimes have wacky ideas about what makes sense. This is a prime… or should I say ‘sub-prime’ … example of it. Condo over-developments have done great damage to the health of the housing markets in many cities, and if City Hall doesn’t take some action to cut down on speculative development here, it could delay the recovery of our own.
The Tricky Zig-Zag
The old geometrical truth is undisputed: the shortest distance between two points is a straight line.
How I wish the firming of the housing market and its path to recovery were following the same truth. In the last eight months, I’ve seen many signs that the market in Baltimore was beginning to recover, and at about the time when my cautious optimism seemed about to be rewarded, there would be some economic event or trend emerge which would send it back downward.
Remember that the data reported in the press with great fanfare is backward-looking. They report what HAS been happening. What I look for is activity… what people are doing now, which won’t be reflected in the data for one or two months. And I’m seeing promising levels of interest and activity.
So, keep the faith. We’re recovering, zig-zag style.
Half Empty, or Half Full?
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
Herbert Hoover, redux
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%.
The housing market is in recession. Prices are falling at a record pace in year-over-year comparisons. Homeownership in America is declining.
These are the recent headlines, trumpeted in breathless tones on business cable channels and in heavy black type in newspapers. But this data is routinely reported in hindsight. It does not reflect what professionals around this area are experiencing every day: we’re all busier than we’ve been in a year.
Remember the credit crisis? Well, the loan officers I speak to are busy writing new loans and refinancing older loans. Some are finding it difficult to keep up with the pace of the new business coming in the door. Yes, they are working harder to provide underwriters with more documentation and there are fewer loan programs out there (thankfully the low documentation “liars loans” have been discontinued by most lenders), but people with decent credit scores and some money in the bank are able to get new loans. It sounds almost quaint and old-fashioned to ask that people actually be creditworthy… but perhaps that’s a sign of how far the industry had strayed from its roots during the recent boom.
The Baltimore resale market is picking up quite nicely, from my anecdotal evidence. My colleagues tell me they are busy with new buyers, as am I. We haven’t written many contracts yet, but homes are selling and I have no doubt that by March I’ll be submitting offers on homes for numerous clients currently becoming educated on what is out there for sale (which is taking a bit longer than usual since there’s more inventory to view).
So to the average consumer/homebuyer who has not yet decided to jump into the pool… c’mon in. The water’s getting warmer as spring arrives.
Whose decision is it?
Several items have come up recently, both in my practice and in the news, regarding the way that clients use the advice their Realtor provides to them in the performance of their agency obligations. The general point of these stories and situations lies in one major question: whose decision is it to buy a property? And how do clients use the advice they receive?
A few weeks ago I was showing properties to a young woman who had come to me through a recommendation. She was looking at listings in a part of town that has a lot of renovation activity, and that she knew had some “rough edges” but was in the process of being “gentrified,” for lack of a better word. She found a property that she liked very much in a location that was further from the real frontier of the neighborhood than many we had viewed. She asked me the question I expected: “Is this area safe?”
I explained to her that this was a question I really couldn’t answer for her. I would never substitute my perception of safety, being male and at 6′ and well over 200 pounds, for hers. Nor would I want her to do so. I gave her what is my standard advice: I provide on this website a link to the Baltimore Police Department’s crime statistic page, where she could look up the various types of crime stats for a radius around that address. I also encouraged her to visit the area at various times of day when she would conceivably be leaving, coming home, or having guests over, and to get her own impressions as to whether she felt safe living her life there.
Obviously, that wasn’t what she wanted to hear. My impression at this time is that I lost her business.
Then, my manager puts a copy of a recent Baltimore Business Journal article in my mailbox at the office, talking about how buyers are now starting to sue their agents because of the advice they gave a few years ago to buy a house at an inflated price, or to buy more house than they were able to afford, etc. My mind went back to this young woman, because it has always been my policy never to forget two very important principles, first: Its not my money. I’m not the one who is going to have to budget for the mortgage payment, and I’m not the one who will be eating peanut butter and jelly if something goes awry. Second: Its not my home. I’m not going to have to put up with the nuisance that is associated with any given neighborhood… and there can be many different types. Parking, traffic, nuisance crime, taxes… everyone has a different irritation threshold.
Real estate agents should never assume they can make decisions for a buyer, whether that means telling a person that an area is safe, perfect for them, or that a particular mortgage is a wise decision. My job is to help that buyer become educated to the point where they can make that decision for themselves. Otherwise, I think that court cases are inevitable, and probably richly deserved.
I hope that this message finds you recovered from the holiday rush (and your New Year celebrations!), and starting to survey the landscape of 2008.
There’s been a lot of media attention in the last six weeks to the state of the housing market and the economy in general. The messages have been mixed, at best, and confusing. So-called “experts” duel with each other over whether the housing market has reached a bottom, and whether we’re headed for a recession — or are already in one.
The Baltimore region, lets face it, has fared pretty well in comparison to many parts of the country. Maryland’s economy is strong, unemployment is below the national average, and jobs here are growing. Don’t let the national media scare you away from the market. We are still undervalued compared to other east coast cities, and especially to our nearest neighbors down in DC.
Ready for a prediction??
Well, from ‘down in the trenches’ its my opinion that we will see some stabilization in the local housing situation come spring. I think that we’re scraping along the bottom right now, mainly because January and February tend to be the slowest months in the calendar. There was a slight acceleration in the market before we went into the holiday period, and with interest rates still low and a good amount of inventory, the market will improve when the weather does. Selling a property will still take a little longer than in the past, and it will be even more important that the property shows itself well from the very start. Buyers will probably have to jump through a few more hoops with their lender of choice, simply because credit will be tighter — but it will still be available to qualified buyers. If you need advice about a particular property to sell, or on what lenders you should be considering and working with, please feel free to call or email.
New for ’08, and Coming Soon!!
Many of you have used my website — www.charmcityrealestate.com — as a resource for information and for keeping up with the housing inventory, either through a direct MLS search or an automatically emailed update of listings that match your interests. The site was designed six years ago, and has been updated regularly with new functionality — if you haven’t visited it recently, go to the main information page for Buying a Property and you’ll see a new calculator that helps a homebuyer factor in commuting costs when comparing two properties. If you’ve ever been in the situation where you were weighing a cheaper house with a longer commute versus a more expensive house with a shorter drive to work, you’ll think this new bit of technology is pretty useful.
With the increasing use of larger, flatpanel monitors and the passage of time, it just seemed like this slow period was the perfect time to raise the hood and begin an overhaul of the nuts and bolts. So, I’ll be keeping you updated on the timetable for the debut of a new CharmCityRealEstate web portal. We’re putting it on a different software platform and changing the way much of the site functions. The display will be wider to better fill most people’s monitors, and we’ll be adding video capabilities and moving my blog from its current third party site right into CCRE itself.
I hope to have the chance to speak with each of you personally very soon… and until then… all the best.
Finally, Some Common Sense
Our system of MLS’s is a wonder of businesspeople getting together to expand competition and serve the public, while also serving their own interests. Broker reciprocity is a wonderful idea that has created an enormous real estate industry which, because real estate agents are all independent contractors, also remains vibrant and competitive. So, you’d think that a Republican administration who loves big business would leave us alone, right?
Nah. Not so much.
The FTC has been trying to treat the MLS as a publicly-owned and regulated utility (which, as a stockholder of our local MLS, truly amazes me) by telling these organizations who can be members and trying to have their rules and regulations overturned in court. In October 2006 the government filed suit against a Detroit-area MLS because they had prohibited “exclusive agency” listings from appearing in the database. The current crop of discount brokers love to use these type of listings for a variety of reasons, but to try and get around legal jargon, these type of listings basically turn the MLS into a bulletin board for properties that are glorified “For Sale By Owner” properties. Most of these brokers want you to contact the owner directly to set up showings, and if a buyer contacts the owner directly, that owner has no obligation to pay any commission. Since buyers routinely surf housing sites that pull information directly from the MLS, the possibility that a buyer could contact a Seller directly and completely avoid the services of a real estate agent, or paying for those services, is fairly high.
Now, there are quite a few “FSBO” websites out there, so there really is no reason why the stockholders of the MLS should have to provide another opportunity for Sellers to evade paying for their services. Thank goodness a judge has finally had a chance to look this case over and basically agree with the real estate industry. Judge Stephen J. McGuire found that the government’s assertion that the MLS had tried to “unreasonably” restrain or “substantially” lessen competition had not been adequately proven, since discount real estate services still remained widely available in the region.
The story, in today’s version of the Wall Street Journal, is some good news in the middle of a bleak real estate outlook. The government will appeal the case, unfortunately, but a first round win is a sweet one, indeed.
Inventory Figures Improving
Today’s Wall Street Journal gives us a glimmer of hope as far as existing home inventory is concerned. According to figures compiled by Zip Realty, inventory in eighteen metropolitan areas (including Washington and Baltimore) declined in November.
Washington had a significant 4% decline in housing inventory. Since its the heat from rising Washington prices that have made Baltimore’s cauldron boil over the last few years, this figure is at least as important as the fact that Baltimore’s inventory also declined by a smaller — but still larger than average — 2.6%. This is the second month in a row that monthly inventory figures have declined. While this is a normal trend for this time of year, its nice to know that there is SOMETHING about the current market that is returning to NORMAL.
Unfortunately, today’s Baltimore Sun contained information that is more worrying. The story has to do with a dispute between RealtyTrak and local auctioneers over the amount of increase in foreclosure auctions in the Baltimore marketplace. Local auctioneers (probably the more accurate source of information, in my opinion) estimate that foreclosure auctions have increased on the order of 48% in 2007 over 2006. RealtyTrak came up with the amazing figure of 344% increase for the same period.
As someone who routinely peruses the auction page of the Sun, I do not believe that the number of auction ads have increased by that order of magnitude. But 48% is still ominous, dangerous, and something that we hope does not continue as we head into the spring.
RX or Band-Aid?
The last few months have been discouraging, to say the least, in the way that the economy and our government has responded to the sub-prime mortgage issue, and the spreading instability in other areas of credit and financing.
At first blush, the concept of preventing the re-setting of mortgage rates for a period of time could have the effect of reassuring financial markets and the consumer that the worst is over. I’ve felt for quite awhile that the main problem — at least in our market in Baltimore — is that the consumer was scared to jump in. Consumer confidence numbers have sagged to very low figures, even as rates stayed reasonable and the employment data remained strong.
But preventing these financial instruments from re-setting on schedule might also just kick the can down the road until the end of the freeze. (Might that be long enough to prevent the current Administration from bearing the political brunt of the resulting damage to the economy? I hate to be so much of a skeptic… and yet, nothing in Washington in the last 7 years have given me any reason to be charitable.)
The other result could very well be that the investment funds and institutions who bought into these financial vehicles because of the out-year prospect of increasing return on their investments might also be destabilized by the freeze of rates at their introductory levels. This could have the opposite of the intended effect, further increasing the uncertainty and moving the country into a full-fledged recession.
How nice it would have been if there had been some regulation of these investment practices at the start. Wall Street will always find a way around current regulation, it seems, to create some new product that blows up in people’s faces (after the traders have made their commissions, of course!).
It should be an interesting winter.
A Small Silver Lining to a Very Big Cloud
Syndicated real estate columnist Ken Harney had some good news in his column for Friday 8 June, at least for the established, full service brokers: the tough market is causing average commissions to rise for the first time in years. This in spite of the rise of the discount, “no service for no fee” brokerages in the last five years.
While the rise is not going to break many sellers’ piggy banks open — from 5 to 5.2% — it still reverses a trend that brought averages down from nearly 7% ten years ago. But it also seems to be presaging hard times for the new kids on the block: the cheapskate companies that specialized in sellers who didn’t want to pay for anything.
One agent quoted in Harney’s column, who is affiliated with an Assist-2-Sell franchise, stated “One of the biggest misconceptions consumers have is that you need to pay full price to get great service.”
Oh, really? Well, how about the old saying, “You get what you pay for.” I think that most consumers have seen ample evidence in every industry in this country of the rock-solid economic foundation of that principle.
Its true that thousands upon thousands of real estate agents just in Maryland alone have never sold real estate in a market where listing on the MRIS wouldn’t sell a house in days, if not hours. Forget about big advertising campaigns, targeted markets, direct mailings; many of these people have never really had to consider them. They were very fortunate.
They are also now having to refinance their mortgages because they have no business. And the listings they do have aren’t selling, because they never bothered to put certain tools in their kit that would let them weather the storm of a down market.
The bottom line, which shouldn’t be a surprise to anyone, is that in a down market it costs more to market a property. Agents need the promise of more money to front the credit for the marketing. Period. You really do get what you pay for.
Real Estate vs. Equities
Watching a PBS evening investment show last night, I was suddenly face to face with a nice looking, silver-haired gentleman who was ardently pushing stocks as the only investment that really paid off in the long run. He looked the part of the sage advisor, and was slinging his hash with a smile on his face. “Exactly what I’d expect a stockbroker to say,” I thought to myself.
One of the primary theories put forth by NAR Chief Economist David Lereah is that the current stock boom — past Dow 12,000 and now 13,000 in an amazingly short time — is in part due to the fact that the housing boom is over and that lots of investment money has been shifting out of the nation’s housing stock and into equities. I can only imagine that this is a normal, routine cyclical process.
There are gallons of statistics that get thrown around in this debate: annual average return of the stock market vs. real estate appreciation, pros and cons of the taxation of real property vs. equities. In the end, you need an accountant to really give you an idea of which does best for you in your tax bracket, with your tolerance for risk and so on. But this kindly looking gentleman on the television last night made it seem so cut and dried. Stocks win. Game over.
Call me a skeptic. Perhaps I have too many memories of the stock bubble of the turn of the century. How many of us real estate folks got 100 shares of the Realtor.com IPO, watched it soar to be worth tens of thousands of dollars and then fall to earth again before the rules of the IPO would let us unload it. I won’t even go in to my well thought out investment into the now non-existant Pets.com. Or the fact that I managed to buy into Microsoft just as it went from technology high-flyer to stagnant behemoth. Vista, shmista.
The fact no one wants to admit is that hardly anyone really makes ‘average’ returns. The average is just that: some statistical melding of all the people who make good, educated or downright lucky decisions with those who don’t. I’ve shared some of my dogs, but I also have made some good stock investment decisions over the years. But my average is dragged down by my losses and, as I age, I feel even more sorry for the folks who were planning to retire in 2000 or 2001 and who saw hefty percentages of their retirement income vanish almost overnight.
I’ve also lost money in real estate too — and made some. But the numbers we’re talking about pale in comparison to the amount of money that has vanished into thin air on the whim of the equities market. Most Americans — although they may be tied to the Dow Jones because of the equities in their 401k retirement plans — still view the stock market as too risky for people with average jobs, moderate incomes and some level of education less than an MBA. Although technically a slice of a business, a stock certificate is really only a piece of paper. You can’t live in it, rent it out, develop it, or sell it for a substantial sum even in the worst of times. The number of large, supposedly solid, companies who have ended up in bankruptcy in the last decade point out that its not just the Pets.com’s of the world who disappear in a squall of worthless paper. That’s one reality that the smiling gentleman on television just doesn’t want to talk about.
Real estate, on the other hand, is a market that is much easier for most people to understand. They have a mortgage, so they know what it means when rates are high or low. They see the “For Sale” signs on lawns or in windows and they know when inventory is high or moving briskly. They know when people are losing their jobs and economic growth is sluggish, which means that property might not be in demand right now. They know what neighborhoods are desireable to them and which ones are less attractive. As professionals, we have the responsibility to provide the specific information that helps our clients make educated choices about a particular piece of property — but in the end it is their decision to make, and most people feel qualified to do so.
The stock advisor ended his commentary by admitting that everyone should own their home. But he definitely left the impression that other investments should be in stocks alone. I’m sure that’s what the inhabitants of the financial markets dream about.
I don’t think its a good idea. And I don’t think that most citizens do, either.
Why Do We Work for Free?
The public doesn’t know, nor do they appreciate, how often we work for free. Worse yet, they don’t know how often we work, pay for advertising and actually LOSE money on properties that don’t sell, buyers that don’t buy, or deals that don’t happen.
When I first became a real estate salesperson and I saw the part of the buyer agency agreement where you could specify a retainer, I laughed to myself. I didn’t take the idea seriously, mostly because I knew how difficult it would be to get buyers to do it. While homeowners just expect that we will put out gobs of our own money to sell their property, despite their stubborn resistance to our marketing suggestions and pricing advice. Then, without doubt, they will complain about our commission to whomever they speak — particularly when their house doesn’t sell in two weeks like it would have if it had been listed two years ago.
If it weren’t an antitrust violation, I wish that we could band together to demand retainers from buyers and sellers upfront, to help keep THEM as serious as they want US to be. The buyer who has some serious bucks invested in their chosen agent would be less likely to make that choice lightly, abandon that agent at the drop of a open house sign, or waste hours of time and gallons of fuel before deciding that the time just isn’t right for them to buy now. Thank you so much for your efforts. Buh-bye.
Imagine how open a seller would be to our marketing advice and suggestions on pricing if they had to pay a lawyer-style retainer upfront for our services — which they would only recoup out of the total commission when the house settles. I can foresee a lot fewer temper tantrums and unreasonable last minute demands at the settlement table if they had an initial investment in real estate services on the line.
But, of course, all of this is wishful thinking. Such appreciation for our services will never spread among the general public when many of our colleagues don’t have the same appreciation for THEIR own reputation, time and service. Given the ‘self-employed contractor’ model which is the standard in this industry, you have so many people willing to ‘cut corners’ or sell their soul for a commission that the amount of the commission itself always seems to be open to cost cutting.
We can’t expect the public to value our time and service until we do. Period.
The Baltimore-Washington Axis
The news a couple of weeks ago was fairly stark. In the first two months of the year 2007, a study of 18 major markets showed that only two of these markets had seen a decrease in real estate inventories of existing houses for sale. For the first time in weeks, we were hearing the media blather on again about the ‘bubble.’
The two markets who had the enviable decrease? Washington and Baltimore.
The result was not a surprise to those of us who work in this region. We’d seen bad days, especially last fall heading into winter. The phone wasn’t ringing. But, starting in mid-January, things were beginning to pick up, and the first quarter was starting to look pretty good as contracts, settlements, and new buyers were coming in at a nice pace.
The movement of the two cities into one large economic megaplex has been gradual, and many long-time residents of Baltimore, in particular, may really not be aware of it. Roughly 35 miles separate the downtowns of the two cities. Baltimore has traditionally been the larger of the two jurisdictions, but Charm City falls behind when metropolitan areas are included in the count. Washington’s sprawl has been of epic proportions, especially into Virginia — where smart growth has rarely been talked about and never really seen.
Increasingly over the last five years, Baltimore has been evolving into a different type of bedroom community for the Nation’s Capital. An aging, old-line industrial matron, whose empty factories and deteriorating manufacturing infrastructure has given her a gap-toothed smile, Baltimore has been getting face-lifts around her digital harbor, from new high-tech industry to posh waterfront condominium developments. Several cranes dot the downtown skyline, and new clusters of skyscrapers are rising in previously low-rise districts and vastly expanding her visual impact.
Yet state and federal authorities are ignoring the desperate shape of mass transit in the city, and in how the two cities connect with one another. Light rail and subway plans are talked about in generational time spans, and commuter rail lines between the downtowns are heavily used and overcrowded right now. Highway congestion already ranks as some of the worst in the nation, and the resulting ozone and air pollution alerts make summertime heat and humidity even more unpleasant and unhealthy.
We could be looking and the rebirth of a city, and its evolution into a different kind of satellite city then we have seen before. But without adequate transportation infrastructure, both cities may choke on their own exhaust. This is primarily the responsibility of Annapolis to fix, and the time to start was yesterday.
Smart as a Tax
There are two words around here lately that have struck fear into the hearts of government bureaucrats: structural deficit. It seems that our fair Old Line State needs to seriously overhaul its revenue system in order to meet the challenge of the 21st century, because right now we are looking at falling billions short in the next few years. Our new Governor, to his credit, has asked the General Assembly to give him until next year to study the state government, its structure and revenue sources, so that he can propose a comprehensive plan that will streamline government and try to wring out savings there, as well as changes to the revenue structure that will hold tax increases to a minimum. While delay might seem to be a bad choice, the new administration is only a couple months old, and fully realizes that it will bear the political brunt of whatever solution is put in place. Therefore, they want that solution to be as well-reasoned as possible.
But its rare that adjective well-reasoned can be applied to the knee-jerk approach of a Legislature in full throttle. Many in the House of Delegates and the state Senate want to pass taxes now, in the ‘lets bandaid the problem before it starts to make really bad headlines’ approach.
One of the brainchildren of this group-think is a tax on services, like the sales tax which applies to purchases. This, of course, includes real estate commissions. I’m hoping that the Governor is able to hold off the boneheads who came up with this idea.
My commission is already taxed as income, so now they want it taxed before it gets to my hands, an effective way to double tax a profession. As competitive as real estate is, I’m not sure that we would be able to pass this tax along to the buyer or seller of property — commission rates have already dropped significantly in the last decade.
But let’s say our brokerages find a way to pass this along to the buyer or seller. Maryland already is near the top of the list when it comes to real estate transaction expense. All this will do is make buying and selling property even more expensive, and no doubt catapult us to the top of the list of most expensive settlement cost states. That’s a distinction that we don’t want or need.
Local government has reaped an enormous windfall from the real estate boom of the last few years. So has the state treasury. How much gold can they suck from this golden egg, before the hollow shell is crushed?
Stay tuned… the boneheads in Annapolis might just be willing to find out.
The legislature did not move this tax onto the floor in either house. Fortunately, the Maryland legislature doesn’t sit in session but from January to April each year, so they have effectively killed the idea for this session. Be thankful we don’t have a year-round session.
Don’t Sit Under the Lending Tree…
I have long discouraged my customers and clients from using online lenders. As far as I’m concerned, if they don’t have bricks and mortar in the state in which you are residing, who knows what laws govern their operation? What real estate laws and customs are they familiar with? And when mortgage brokers — who DO have bricks and mortar in the neighborhood — can be such problem sources that the State of Maryland has finally begun to regulate and license all mortgage officers, who is looking over the shoulder of the online lenders?
I’ve heard of many situations where out of state, online based lenders balk at the settlement table because they are unfamiliar with Maryland idiosyncracies, such as ground rent, and where buyers find their loan paperwork looks nothing like what they were promised, as far as interest rate, penalties, payments, etc. But a recent article in the New York Times (11/12/2006) brings the ethics of two such online lenders into question.
Bankrate.com and LendingTree.com seem to have been caught with their hands in the cookie jar. A class action suit was filed against Lending Tree last October, claiming that despite their advertising claims that mortgage lenders compete for the buyers who come there, Lending Tree in fact diverts all buyers to their own in-house lender, Home Loan Center, Inc. Home Loan Center then functions like a regular mortgage broker, a reseller of loans from other companies. But no rate comparisons are made, so its unclear whether those companies are actually ‘competing’ for Lending Tree customers, or whether Home Loan Center just makes a scad of money from their own fees.
So all those bankers in the commercial actually work for one company. Lending Tree.
Bankrate.com settled a class action lawsuit last October in which customers claimed that the lenders advertising on that site promised rates they did not deliver. Bankrate paid $3 million to the plaintiffs, without admitting guilt. That’s a lot of money for an innocent company to pay out, just to keep the trial from going forward. Makes ya wonder, doesn’t it?
So, who IS watching these companies? Seems like just the trial lawyers. I’d keep that in mind the next time you’re looking for a home loan.
Although it might mark me as a modern Luddite, I have always believed that machines will not replace humans at certain tasks. While real estate has become more and more dependent upon the computer in the last few years, and the internet especially, the World Wide Web will not replace the Realtor anytime soon.
Yes, I know, there are other professionals who have not been so lucky. Remember the travel agent? (Yes, children, humans actually used to sell airline tickets and hotel reservations… and no, their names were not Expedia or Priceline.) But in the end, there’s not much variability between one plane ticket and another. The airlines set prices and incentives and there you are.
Houses are something much more difficult to value and purchase. And a prime example of such variability showed up last week in the pages of the Wall Street Journal, after that bastion of conservative capitalism conducted an evaluation of Zillow.com, one of the internet services that claims to be able to ascertain the value of anyone’s home.
To summarize: Humans 1, Internet 0.
To test Zillow against the real estate market, the Journal used direct market data from regional multiple lists for 1,000 transactions that had just closed – too early for that data to show up in Zillow’s database. The overall accuracy of Zillow’s estimates in the Journal study had a median price difference of 7.8%, above or below the actual sales price. Zillow itself lists its median ‘margin of error’ at 7.2%. Not bad, you say? Well, remember that on a lowly $200,000 purchase 7% adds up to $14,000. Not only will that pay a Realtor’s commission and more, it can also exhaust the negotiating room that many Sellers build into their asking prices, or that Buyers build into their opening offer. But that’s just the median.
Zillow was more than 25% off target in 11% of the transactions surveyed. And in 34 of the 1,000 transactions, Zillow was more than 50% off. In one spectacular example of computer wizardry, Zillow underestimated the value of a house by more than $2 million. (For the original Journal article, see the "Personal Finance" section of the paper, Wednesday February 14, 2007.)
While these computerized estimates of value might be great fodder for dinner party chit chat, its clear that you really need a Realtor to come, take a look at the property and its community, look at the most recent comparables in the private multiple list database, and come up with a Comparative Market Analysis (CMA) the ‘old-fashioned’ way. To do otherwise, is simply foolhardy and could easily cost a Buyer or Seller far more money then they could possible save.
Since the Base Realignment and Closure (BRAC) Commission released its recommendations in late 2005, most informed Marylanders have been told that the roughly 60,000 jobs that are being relocated here will be a boon to the economy, but an enormous challenge to utility, transportation and education infrastructure, and a shot in the arm to the flagging real estate market.
Will it? A recent poll of affected workers at Fort Monmouth, New Jersey indicated that only about 40% were planning to move when their jobs moved. Because of that, the SUN ran a story last week that said the DoD was hiring Maryland workers for new job openings, so that they wouldn’t lose 60% of their workforce all at once when the move takes place. So, although the economic impact will seem to be guaranteed, with Maryland workers getting 60% of these jobs and up to 24,000 new households, the initial indicators are that the majority of the jobs will be taken by people who already live here.
So, is the state of Maryland planning for a big party that will be relatively small? If there really are only 24,000 new households relocating to the state, spread over localities from Anne Arundel, Howard, Harford and Cecil Counties to the City of Baltimore, should the state plan for twice that number?
The decision over these improvements will be made in a very tight budget environment, and the decision must be made fairly quickly in order for the work to be funded and put on the roughly 10 year plan the state maintains. Roads and schools take a while to plan, engineer and construct. The O’Malley Administration needs to look carefully at what needs to be done and avoid over expenditure. And localities and the real estate industry — builders and brokers — need to temper their expectations. The golden egg might just turn out to be a lump of coal.
Ahh… Ground Rent
Last month, the Baltimore SUN did a series of articles detailing some of the excesses that have taken root in Maryland’s archaic, feudal ground rent tradition in the years of the real estate boom. And there are excesses. Its stupid that someone can take away your house for an unpaid ground rent of $24 per year, as happened to one of the unhappy homeowners in the newspaper’s series. Several specific real estate agents took a lot of heat in the articles because acting as renovators and developers, they actually created new ground rents in the last few years. And the industry as a whole was portrayed in vaguely unflattering terms as looking out for the interests of the evil, greedy ground rent holders.
The SUN *loves* to create black and white dramas, filled with Snydely Whiplash-style villians and Polly Purebread-style victims. And as usual, the truth is more nuanced.
The real estate industry is normally slow to jump onto reform bandwagons where the rights of property owners is at stake. And whether or not you like the ground rent system, these people have legally bought the rights to collect this money and its been a part of the legal legacy of Maryland for close to 300 years. This is a good thing, since property rights are one of the mainstays of the American Constitution, right up there within the civic holy trinity of Life, Liberty and Property. (Only Jefferson added that ‘Pursuit of Happiness’ business… the rest of the Founders were more pragmatic. Property can be measured. Happiness can’t.)
Ground rent holders also came in for the waxed moustache treatment, and certainly there are a bunch of sleazy ones. But there are also normal, good people who looked at ground rents as a secure method of funding their retirements, and several large charities in the Baltimore area who, through the largesse of their supporters over the years, have had the title to ground rents donated to them and collect quite a bit of money every year from them. Only a handful of the professional sleaze buckets decided this was a legal way to rob people of their homes, but they are the ones ruining it for everyone.
Personally, I wish they would abolish the entire system. Many of the earliest ground rents cannot be traced to a specific holder anymore, and so all they do is create another legal and financial situation that buyers and sellers have to confront at settlement. Mortgage lenders who are based outside of Maryland just don’t ‘get’ ground rent, and can screw up the transfer of a property by deciding at the last minute that they don’t like what they are getting into.
The Maryland Legislature, now back in session and just brimming with infinite wisdom, has decided that ground rent reform is a top priority. The SUN is smelling Pulitzer. And the rest of us, who deal with ground rents regularly, just hope they don’t screw it up any further than it already is. Anyone care to make a wager?
Taking Leave of Your Business Sense
When it comes to a real estate transaction or working with an agent, some otherwise smart people make some pretty dumb assumptions.
Would you call five lawyers, and tell each of them that you will pay the first one that writes up an acceptable Will, based on the criteria you provide? Or, to move it to the other end of the trust spectrum, would you call up five car dealers and tell each one that you’ll buy your car from the first one that brings you a special order at your price with your list of features?
If you did, you probably wouldn’t hear from either the lawyers or the car dealers again.
I got a call from a successful area businessman today who basically asked me to do the same thing. Once it was clear none of my current listings suited his needs, he wanted me to keep an eye out for him. That was fine, until he declined coming to see me or hiring me as his buyer agent. Seems he has a friend who also is an agent, and he just couldn’t become a client of someone else. So, he basically thinks that I will work my butt off looking for properties that meet his criteria — with no promise of loyalty on his part to make sure that eventually I am compensated for my work. Its clear he also expects his friend to do that too… and who knows how many other listing agents he’s called and asked to do the same thing, once he discovers their listings also don’t meet his needs.
Does he think that he’s savvy and has five agents working their collective butts off for him?
In the end, real estate is about trust and loyalty between agent and buyer, or agent and seller. You might get a newbie, a raw hungry rookie, to do something like this once or twice until they had gotten tired of working for free, but no seasoned agent will bite on this kind of one-sided offer. We’ve all been burned by the potential buyer who won’t declare loyalty, work with you and reward your efforts.
So, think about this when you think its easy to get five agents to work for you at the same time. Fact is, they aren’t. If you want an agent to work their butt off for you, deal with them fairly and exclusively. Then you’ll find what you want.
A Good Omen, Finally?
The Wall Street Journal reported in yesterday’s edition (11.15.2006) that although real estate inventory in Baltimore increased by 2.1% last month, inventory in Washington DC actually decreased by 3.4%. If there is any statistic that predicts coming stabilization in the Baltimore market, its this one. Many of our new buyers have been coming from Washington, drawn by lower prices and relative ease of commute. If inventory there is starting to shrink, prices will hold, and once again buyers will look to Baltimore as the affordable alternative.
Coming as this does at a time when mortgage rates are holding or lowering slightly, this only makes the possibilities of a turnaround by springtime more likely.
Will the media report this in a positive way, or will they ignore it and go on predicting gloom and doom? Well, the Baltimore SUN has given no play to these stats at all in today’s edition.
I can think of only a couple of reasons why this might be overlooked. One would be that negative, ‘the sky is falling’ stories sell newspapers.
A second reason is a little more cynical, and more plausible. David Lereah, chief economist of the National Association of Realtors, has postulated that the real estate boom of the last few years robbed Wall Street of the investment cash they were looking for to resume the Bull Market of the ’90s. As real estate prices escalated over a period of years, people thought it was a safer bet to buy, renovate and re-sell real estate and so stock prices languished.
Now, as the media has been hyping the bad news stories about real estate, look at what has happened to the Dow. Despite the general feeling that the economy is sluggish, uneven, and not doing as well as the statistics suggest, the markets have been hitting new record after new record. And media companies are, for the most part, public stock companies who have benefitted from the run up in stock prices.
Could it be possible that the media is actively trying to keep the real estate market slow so that their shareholders benefit?
A Coming Storm
Baltimore has never been a big condo town, and at the time of the last market downturn, some of the most well publicized failures (think Harborview) were condo developments that had gotten ahead of themselves and the market. With that history, you’d think that developers this time around would be a little more cautious.
Not bloodly likely. The city is currently expecting ground breaking on hundreds of new condominium units, and has hundreds currently under construction. From the incredibly high-end units at the Four Seasons and the Ritz Carlton, to the more modestly priced units on Water Street, most of the cranes visible on the city skyline are building residential units. Two sixty-story towers are planned for Guilford Avenue between City Hall and the Standard Oil Building, and another mega tower is planned for the old McCormick site on the Inner Harbor, which will be a mix of ground level commercial, a hotel, and condominiums. Streuver Brothers is gamely building condos on Charles Street in Midtown and on Saint Paul Street in Charles Village. The word on the street is that these non-MLS offerings are not moving well.
Developers defend this ‘damn the torpedoes, full speed ahead’ attitude in the name of BRAC, the military base closure commission, that promises thousands of new jobs in Maryland at bases just to the north and just to the south of Baltimore. They say that lots of condos can be expected to offer reasonably priced housing to these workers and everything will be grand. Just grand.
I think a little more healthy skepticism would better serve the city, and their personal financial condition. Time will tell.
Did I Say That?
Bashing the media in Baltimore is nothing new; its beyond a spectator sport, but actually most people in town have had their chance to bash the Baltimore SUN for its hysterical and sometimes intentional misrepresentation of the real estate market. But I’m going to take it further. There’s NO decent media outlet in the city that really covers the real estate market in accurate thoughtful terms. None of the business papers focus on it with any regularity. The Baltimore EXAMINER is a complete waste of trees. I would feel horrible for the stately oaks that gave their lives to become the newsprint for the EXAMINER, laying on sidewalks and in flower beds all over town, moldering in its plastic bag.
That is, if it got delivered to someone’s door at all.
But since the SUN is still the most widely regarded source of real estate news in the region, its there that the most strong criticism must remain. Compared to the size of the real estate section in the SUN, especially on Sundays, the amount of time and energy put into the real estate reporting is pitiful. Its also driven by political agenda, since it often doesn’t matter what you *say* to a SUN reporter, you will be misquoted, quoted out of context, or simply have a quote refashioned out of what you *did* say to agree with the tenor of the article that the reported wanted to write all along.
The market in Baltimore will remain in flux until the SUN decides to stop trumpeting the end of the world, the bursting of the bubble, etc. etc. and starts to report on what is actually happening in the city. What they’re doing is a disservice to the buyers and sellers in this market, and to the professionals who have the knowledge of what is happening and are being ignored.