Big home price decline predicted for Baltimore
So what are rents saying about home values today? To answer that question, Fortune worked with Moody's Economy.com to estimate adjustments needed to get prices and rents back in balance. We'll go into detail below, but the headline is gloomy: According to our calculations, prices in most markets will fall by double digits over the next five years.
Fortune says upper-end homes in the Baltimore area -- ones that sell for twice the median price -- will likely see a price decline of almost 28 percent over that period. That would be the fifth-biggest decrease, if Fortune is right, behind only Orlando, Miami, California's East Bay and Tampa in Florida. See the list here.
The average drop it predicts for upper-end homes in the 54 metro areas it looked at is about 15 percent. (Fortune's forecasts account for rents rising; otherwise, it says, the drop would have be even bigger to get home prices and rents into balance.)
Tip of the hat to Baltimore Housing Bubble for pointing this out first.
All forecasts must be taken with a grain of salt, of course, if for no other reason than the fact that reasonable economists disagree. Last time I talked to Economy.com, folks there weren't predicting such a big decline for the Baltimore area.But back in 2004, well before the slump, Dean Baker, co-director of the think-tank Center for Economic and Policy Research, was convinced by the rent-price differential that Washington was headed for trouble -- so convinced that he sold his home and switched to renting.
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Comments
This may be the single most staggering, yet painfully truthful forecast regarding the Baltimore market that I have read thus far. Just when you think the news couldn't get any worse....it does.
And now for the bright side. For Buyer's, it is now wonderful time to be in the market. And if we believe Fortune, it will only get better. For those who plan to stay put - they, like all other homeowners before them will prosper in the long-run. For those new homeowners who purchased during the height of the boom, and who are now forced to sell - the outlook appears to be quite bleak indeed.
Craig Fuhr
Maryland Property Math
www.mdforeclosurefixers.com
Posted by: Craig Fuhr | November 10, 2007 4:58 PM
What about those of us who don't live in homes worth over twice the median? Or does fortune not care about our fortunes?
Not that I'm not crying a river over here for the good people of Roland Park, but I sort of think they might be able to take the hit better than many.
Posted by: msh | November 11, 2007 3:37 PM
MSH, don't worry. Lower end properties will be dropping by at leasst 30% also.
The same bubble dynamics at play there as at the high end-
Demand- the end of junk mortgages means the end of nothing to lose, 0 money down, speculation fueled demand that accounted for at least 1/2 of city sales in 2005.
Supply- the missile is in the air with building inventory, 1000's of units under construction (eg. 5000 condos for sale or under construction in Baltimore), and many more 1000's of foreclosures in the pipeline as the 0% down speculators walk away.
Posted by: Worker | November 12, 2007 11:35 AM
The soaring home prices happened in the last 5 years, and the predicted return to equilibrium is for the next 5 years. Those ten years of an out of balance ratio would comprise 2/3 of the window of "historical" ratios! How do you compare with so little data at equilibrium? That's junk science. In some respects, this upward trend in prices was unprecedented, so how can such a simple short-term "historical" model predict what has never been observed before?
And they don't show how the ratio itself has moved recently. What years' data is it coming from? It certainly does not reflect the Charles St corridor's zooming rents. Informally, I've seen 60-100% rent increases in the last 5 years. That would have kept the ratio balanced or even trending the other way.
Posted by: CP | November 12, 2007 11:52 AM