Competition is a great thing. I could price my home below the standard market value and sell it more quickly than if it were an equal price. But then in turn, I'm driving down all the prices in my neighborhood and while I probably shouldn't care since I am moving anyway, I still think that the price decrease should be reasonable.

No surprise as to my opinion and predictions. In general, I believe the "average" housing in Maryland will drop 30% from the top in 2005 till 2010. Some nicer, crime free areas (still looking for them in Baltimore) will only drop 15%. The extra frothy areas like Canton and crime infested areas like north of Patterson Park will fall a lot more than 30%. Owning a home today must be thought of as an investment (this is part of the housing bubble problem). When you buy a home, you are in essence buying a leveraged investment, said differently; you are borrowing somebody else’s money to buy a home. Price declines and price increases not only happen to your equity portion (down payment and principle payments), but also to the leverage part of a mortgage (unpaid balance). Even a slight price decline could whip out your entire equity position (the down payment you worked so hard to save for over last few years). Lets say you are buy a home for $200,000 and put down the traditional 20% of $40,000. If the price declines 10% you lose $20,000 of your down payment. If the price declines 20%, then you lose your entire down payment of $40,000. If the price declines 30%, then you lose your entire down payment of $40,000 and you also need to pay an additional $20,000. For you frothy areas, 40% price declines would equal the lose of your entire down payment and you would also need to pay an additional $40,000. A lot of people are getting desperate as this blog post correctly stated…maybe it’s because they realize they will be writing a check at their closing or are getting close to being forced into a short sale situation. This really is only the beginning and more pain is certainly on the horizon for home sellers.

Buyer beware.

There are plenty of lovely, crime free areas in Baltimore. You are not looking and are porbably just reading the headlines. Examples include: Gardenville, Hamilton, Overlea, Bolton Hill, Mt. Vernon, Charles Village, Waverly, Roland Park, Mt. Washington, etc.

Kevon, that math is horrible. If you have a $200,000 house ans it loses 10%, that is $180,000. Therefore you only lose $4,000, not $10,000. Good lord....

Jason,

Actually the math is correct. You should understand leverage. The bank isn't going to lose money...only you the home owner. You bear the whole decline. Also I'd beg to differ about those areas being safe. I don't consider getting mugged every other week instead of once a week safe.

200K less 20% (20K) = 180K If you down payment was 40K, you just lost half of your down payment. You don't just lose 20% of the 40K (down payment). This is called leverage. You magnify your gains/loses by using other peoples money.

doomsayers all of them.
there are more people than homes and that situation will continue.
This is a temporary correction, the lord is not making any more real estate but there are more people each day.

gl and don't sell yourself short.

Steve

This is my third downturn since 1984 and don't believe all the doom and gloom. Our area(central MD) has two major assets that all other areas don't have: 1) Uncle Sam & 2) the coming BRAC jobs(more than 22,000 jobs!!). This market is a great one for buyers looking to "steal" properties. The rental market is very good and rents are rising so buy and hold until the market gets better.

The articule makes alot of sense except the prediction that it will be tough to sell this spring. I suspect buyers are sitting on the sidelines now just watching. If they see lending rates going up and / or indications the drop in prices are at the bottom then they may come back to near normal levels.

Wow. This is a great blog. I appreciate the activity. Kevin is right in terms of leverage. In 2000 I had a major stock account with Merrill Lynch and I used margin to double my investments......meaning if I had 100k , I bought 200k worth of stock. When the market plumetted 10% in a matter of days I lost 20k (20%) not 10k (10%) because my stock went down by 20k so I only had 80k left. It works the same way in real estate but most people don't see it that way. For some reason it seems safer to them unlike a margin account but really it's no different. As a matter of fact a stock account is easier to sell right away and get out where real estate takes time to sell , which could hurt if the market is decreasing. But usually houses don't plumett in a matter of days like stocks. Anyway, only time will sell. I'm optomistic today because I think we are in a very strong area but I still feel many homeowners and investors today have no clue of their potential downside if things don't turn around.
Pat Hiban

I found this post online...not a local to MD
Anyway, this is happening everywhere across the US. But, in my humble opinion the press isnt overstating what is happening..and will happen...its WAY understating. Pat is right about the market being far worse in the spring. The lack of easy mortgage money is having a dramatic effect. Its not just 'sub-prime' borrowers that are being effected..first timers, luxury home buyers etc. Add to this the FALLING prices and Mr.Hiban pointed out and now ADD the looming masses for froeclosures. Foreclosures ARE going to sky rocket...look at the reports coming out about people missing payments on the credit cards. People stop paying their credit cards before they stop paying their house payment. The very last thing someone wont pay is their house payment.
Where is the upside in all of this?
None, short term. Frankly, no one is really telling the whole truth about how tragic this market is and will be. Unless the fed lowers rates to 3% or less there is no way or country wont go into a recession.
Pat Hiban..thanks for telling the truth.
TC, West Coast.

Good thread. Price is merely a byproduct to supply and demand concerns. The higher demand, the higher the price (as long as supply remains consistent). The lower the supply, the higher the price (as long as demand remains consistent). Right now, you are looking at high supply (a lot of homes on the market) and low demand (less buyers are buying). These two downward pressures on price contribute to the pricing Mr. Hiban outlined in the original article. If you aren't motivated to sell, don't sell. If you are, make the home as appealing as possible and price it right. This isn't about feeling good about getting second or third place, this is about winning. Only the winning house gets the money. There are no moral victories in real estate.

Michael