Maryland's largest private employer -- the Baltimore-based Johns Hopkins Institutions -- has upped its down payment and closing-cost help for employees buying homes near the university or hospital. The maximum, once $2,500, is now $17,000, Johns Hopkins announced yesterday.
That ranges depending on where workers want to buy. As you can see from this map, the largest grants go to people moving into the Harwood, Barclay, Greenmount West and EBDI neighborhoods.
If you’ve had a “For Sale” sign in front of your house for months, you want something to happen and you want it to happen yesterday.
William Z. Fox suggests an auction.
He would — he’s chairman and chief executive of Fox Residential Auctions LLC in Pikesville — but some homeowners heartily agree with his point of view. As sales and prices dropped nationwide last year, auctioneers’ revenue for home sales rose 5.3 percent to almost $17 billion, according to the National Auctioneers Association.
Sales revenue has declined since, but not to the extent that you see on multiple-listing services, the more common way that sellers and buyers find each other.
Sylvia Patterson can attest to that: Her Millers Island house was listed for nearly three years before she signed up for an auction with Fox this spring, not wanting the worry of a vacant property any longer.
“It was a burden and a responsibility,” says Patterson, who with husband Theodore moved into a Timonium retirement community in 2005. “So we thought, let’s try this — and it worked.”
The choice doesn’t necessarily pit real estate agents against auctioneers. Fox, who started his company in 2006 after years in the industry, has a partnership to auction off the homes of interested Long & Foster clients.
At a time when many prospective buyers have a “why rush” philosophy, “what auctions do is create a psychology of urgency,” he says. “You have an opportunity to buy the property at your price.”
But just as auctions aren’t for every buyer (you need money to put down on the spot and the stomach to purchase as-is), they’re not for every seller. Alex Cooper Auctioneers is turning down most of the people who call because they’re expecting unrealistically high prices for their homes, says Jon Levinson, a vice president with the company.
Expectations matter because many sellers opt for a “reserve” auction, in which they can reject the highest bid if they don’t like it. Only in an “absolute” auction does the highest bid win regardless of the seller’s feelings.
“People gotta come down to earth,” Levinson says. What matters “is not what it brought three years ago; it’s what it brings now.”
Most of the fees associated with the transaction — from commission to closing costs — are paid by the buyer, which also has to be factored into the price a seller can expect at auction.
For Patterson, the key benefit was speed. Just a little over a month after she signed up for auction, her Baltimore County house was sold and the deal had settled. People signed contracts back when the house was listed, but those deals were contingent on the buyer selling another house or getting financing, and something always went wrong.
She feels fortunate that the auction worked out.
“Recently, there were two other houses down there that went up for auction — and they didn’t sell,” Patterson says of her former neighborhood. “So you never know.”
Want to research local auction companies or see what's for sale? Here are some sites to get you started:
Included in the housing rescue law passed in July was $3.9 billion for "neighborhood stabilization" -- money intended for buying and rehabbing foreclosures so they can be resold or rented. Yesterday HUD announced how the funds will be divvied up.
Maryland is getting $46.4 million overall -- much to the state government but some directly to three jurisdictions: $4.1 million to Baltimore, $2.6 million to Baltimore County and $10.9 million to Prince George's County. That's a lot less than California, Florida and other large states struggling with well-publicized foreclosure woes, but interestingly, HUD gave Maryland the same "abandonment risk" rating as Florida. (Both were judged to have "medium" risk of foreclosed homes remaining vacant, with no one interested in buying.)
How much is serious looking vs. curiosity, one can only guess. There's always a lag time between looking and buying.
Other stats from August, for comparison's sake: Sales dropped 29 percent (according to MRIS), and the median asking price for homes on the market (according to HousingTracker.net) was $286,000, down 10 percent from a year earlier.
If you're researching homes for sale online, chime in: Why are you looking? What are you looking for?
For instance: Fannie and Freddie started foreclosure proceedings on an average of 36,000 mortgages in each of the first three months of the year. That's an increase of 60 percent from last year's average. By the end of March, they owned 61,000 foreclosed homes, up from 48,000 at the end of last year.
Despite Fannie and Freddie's reputation, these loans aren't just your traditional prime mortgages. Of their total portfolio of 30 million mortgages in March, 17 percent were "nonprime" -- which could mean Alt-A, that gray area between prime and subprime.
What's the typical housing cost around here for homeowners? For renters? How many people moved in the last few years?
The Census Bureau has answers.
In its newest American Community Survey data, it estimates that the median housing cost last year was $1,728 a month for homeowners with mortgages in the Baltimore metro area. Nearly 30 percent of households with mortgages were paying $2,000 or more, while about 10 percent had costs under $1,000. (Nationally, half of homeowners with mortgages paid more than $1,464 a month and half paid less.)
Median rent in the metro area was $934, Census said. About 10 percent paid $1,500 a month or more. (Unaffordability is a problem for both renters and homeowners: Two in 10 homeowners with mortgages spent at least 35 percent of their income on housing costs, compared with nearly four out of 10 renters.)
About 28 percent of households moved to their home or apartment in 2005 or later. How many of them bought, I can't say, but 69 percent of Baltimore-area homes are owner-occupied.
Meanwhile, the vacancy rate for both rentals and homeowner properties is rising. It was 10 percent in the metro area last year, up from 8 percent in 2005, according to the bureau.
Everyone's weighing in on the proposed $700 billion government bailout of financial institutions. The Bush administration originally suggested using that money to buy troubled mortgage-related assets from companies, but it didn't take long for politicians and advocates to call for assistance for people facing foreclosure or for businesses to suggest that hey, maybe their lousy non-mortgage-related assets ought to be bought up too.
Baltimore-area attorney Mike Morin put in his two cents recently with a letter to Rep. John P. Sarbanes. He's kindly letting me share it with you:
I am one of a number of attorneys in Maryland who have been fighting mortgage fraud, foreclosure fraud, and foreclosure rescue fraud for a number of years.
While I am normally not in favor of government bailouts of Wall Street con-artists, I do believe that immediate, drastic action is necessary in view of the mortgage and credit crisis. However, it is inconceivable to me that the federal government would consider the latest bailout without a provision (and funding) for the FBI to investigate the mortgage brokers and lenders who have actively been creating the “liar loans” that are at the heart of the problem. Everyone, including the willfully blind on Wall Street, have known for years exactly what is going on.
Does anyone in Congress really want to preclude this problem in the future? Investigate and prosecute every mortgage broker and lender involved in a fraudulent transaction. I am certain that a conviction and restitution to the government — restitution that is not dischargeable in bankruptcy — would make a lasting impression.
... Both Maryland state agencies and the FBI are doing great work; however, they are not funded to do more than scratch the surface of the problem.
What do you all think of the $700 billion proposal? What would you change, if anything?
EDIT at 7:50 p.m.: Speaking of the FBI and lenders, I just noticed this AP story:
The FBI is investigating four major U.S. financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration.
Two law enforcement officials said Tuesday the FBI is looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc., and insurer American International Group Inc.
It’s hard enough at the best of times to decide what to do with the house during a divorce. When homes on the market outnumber sales 10 to 1, that’s really not the best of times.
What to do?
First, communicate, suggests Louise Phipps Senft. As president and founder of LPS & Associates/Baltimore Mediation, she sees a lot of divorcing couples looking to negotiate agreements, and right now the family home is the focus of much energy and angst.
“We’re working with houses that are completely underwater,” says Senft, noting that it was rare in earlier years for clients’ homes to be worth less than their mortgages but is now happening “with some frequency.”
Other couples aren’t underwater but are stung by the value appraisers are putting on their homes. (Among Senft’s clients, homes at either end of the price spectrum are holding up pretty well, but ones between $400,000 and $800,000 aren’t.)
When a divorcing couple’s home is underwater, there’s increased danger that the party ending up with the house will be the lender, says Jay Brinkmann, chief economist with the Mortgage Bankers Association.
"When home prices are going up, you can very easily sell the house, split the proceeds and the two parties go on their ways," he says. "When you have a drop, ... they may then decide, ‘Just let it go to foreclosure.’"
Plenty of couples don’t want that, though. For some, the agreed-upon solution is holding off on selling. Senft says clients have made that work by staying with relatives or continuing to live together — after negotiating some rules.
“It creates a fairly stressful environment for a family, so we’re doing more and more short-term living agreements for people with regard to roles and responsibilities,” she says.
For couples who don’t intend to sell because one of the parties wants to keep the house, the issue is value. Specifically, putting a number on an asset that could decline in price in the near future.
Some have handled that with agreements to review the home’s value at a future date. Others have opted for a trade-off that isn’t quite equal, at least as things stand: You get the house, I get the 401(k) that’s worth a bit less — right now. “They’re saying, ‘It’s a crapshoot,’” Senft says.
The housing slump does offer a potential plus for divorcing couples: It means fewer problems of the one-wants-to-sell, the-other-doesn’t variety. The housing boom years, by contrast, were easy and lucrative times to unload a house.
“Now, there’s not as much of a fight over the money in the house and, interestingly enough, [there] can be even greater collaboration because they’re sort of in it together,” Senft says. “The experience is joined, the misery of the market.”
B'more and 'burbs: Sales before, during, after the boom
Here's a look at Baltimore City and suburban home sales trends in the last 10 years.
Charts, charts and more charts. Also numbers!
Biggest change in sales, 2000-2005: Baltimore City, up 66 percent
Smallest change in sales 2000-2005: Howard County, up 16 percent
Biggest change in sales, 2005-2007: Tie between Anne Arundel County and Baltimore City, both down 30 percent
Smallest change in sales, 2005-2007: Harford County, down 25 percent
MORE STATS, JUST FOR THE HECK OF IT:
Home sales in 2007 were below 2002 levels in Baltimore City, below 2001 levels in Harford County, below 1999 levels in Anne Arundel and Baltimore counties, and below 1998 levels in Carroll and Howard counties.
When did the local housing market start booming, anyway? "Start of the decade" is the shorthand, but it wasn't until 2001 that sales started to really jump and 2002 when prices followed suit. (Sales peaked in 2005, also the last year that prices saw double-digit gains.)
I noticed an anecdote in a news story today about a homeowner named Heidi Samuda, who expected a sale within a few weeks when she listed her townhouse last month. Still on the market, she's dropped her price by $30,000.
Is she behind the times, expecting a quick sale nearly three years into a slump? Nope. She's in Canada, which boomed later and is now feeling the pinch that started here a while ago.
The property market has been slowing for months across much of Canada and the recent turmoil in the financial sector could slow things even more. Banks are toughening lending practices, fewer discounts are being offered on posted mortgage rates and several players have pulled out altogether.
Back in January, real estate sales were still so hot that one big lender sent more than 100 mortgage brokers to Paradise Island in the Bahamas for a three-day trip at the island's exclusive Atlantis resort. All bets are off for a similar trip next year.
How much of this change is a ripple effect from the U.S. market, I can't say. But the financial industry is so global now that one must assume some connection.
Can Baltimore-based Constellation Energy's swift decision to sell itself be traced back to the housing market? Seems like it, if Constellation's troubles are indeed a ripple effect of the financial markets' troubles, which are due to rising mortgage defaults, which are a result of all the boom-time shortsightedness in home lending and buying.
What other far-reaching ripples (positive or negative) have you seen from the housing-market fallout?
The current housing foreclosure crisis is a pattern that has the potential to form a new geography. Current home foreclosures are not randomly scattered across a metropolitan area nor do they occur solely in neighborhoods that are already crime-prone and depressed. Rather, they are often clustered in middle-class or revitalized neighborhoods that were fueled by the housing boom of the last decade and not in socially disorganized or otherwise destitute neighborhoods.
Police across the country are finding it's a suburban as well as urban problem. One article in the bulletin details ripple effects:
When a neighborhood experiences numerous foreclosures, thefts often occur. Burglars loot abandoned houses, taking electrical appliances and copper wiring or scrap metal. Sometimes, squatters begin living in the houses and, in a few cases, homes have turned into drug farms. A real estate agent in Elk Grove, California, described the momentum of the crisis as “…descending into a feeling of chaos.”
New home sales in the Baltimore metro area dropped 42 percent in July from a year earlier, to 230, according to Hanley Wood Market Intelligence. That includes the impact of deals falling through, which is continuing to happen with regularity. Almost a quarter of buyers backed out of their contracts in July, the company said.
Both the average and median base sales price rose -- the median was up 11 percent, to nearly $390,000 -- but Hanley Wood said this reflected "a shift in unit mix." The company's figures include subdivisions of 10 units or more in Baltimore and the counties of Anne Arundel, Baltimore, Carroll, Harford, Howard and Queen Anne's.
Question: Where can an average Joe afford to buy a home around here?
Answer: More places than a year or two ago. But probably not as many as you’d like.
Mortgage financier Freddie Mac recommends against borrowing so much that more than a quarter of your before-tax pay goes to principal and interest. With that in mind, I did some number-crunching to see which communities are affordable for a household with annual income of $90,000 (average for the Baltimore metro area) and a household making $60,000 (about the salary of a registered nurse).
Read on for details, including a chart showing the breakdown by ZIP code.
The $90,000 household could buy a home in nearly half the metro area’s ZIP codes — 48 percent, up from 41 percent last year and 37 percent in 2006. The $60,000 household has significantly fewer choices: 18 percent of local ZIP codes, up from 14 percent the previous two years.
All this assumes a lot: that the average sale price in ZIP codes during the first half of the year is a good measure of what you can actually buy there. That our two households could get 7 percent interest rates. That they have enough saved to make down payments of 10 percent. (I also threw out any ZIPs with few sales, leaving 107 to compare and contrast.)
The higher-income household can afford homes up to $317,000 — the average in 20724, Laurel. For the $60,000 household, the cutoff is $212,000, or what homes are going for in Aberdeen’s 21001 ZIP.
Most of the communities falling in that affordable zone are in or near the city. Farthest afield for the $60,000 household are Aberdeen and Edgewood. The $90,000 household could get a toehold in every county, but much is out of reach. Fallston, Columbia, Annapolis — too expensive on average. And Clarksville’s $780,000 price tag would eat up 60 percent of the higher-income household’s pay even before taxes. (What about the $60,000 household, you ask? More than 90 percent.)
It’s this sort of gap that has economists predicting more price drops to come here and nationwide. Home prices couldn’t have risen as quickly as they did earlier in the decade if lenders hadn’t tossed out normal underwriting standards, they say, and the guideline-tightening since has pummeled sales.
If it seems needlessly cautious to avoid spending more than 25 percent of your before-tax pay on principal and interest, remember that homeownership comes with other costs, too. Property taxes. Insurance. Maintenance. "You want to be able to afford a water heater if it breaks," says Amy Cutts, deputy chief economist with Freddie Mac. "If you start out too stressed on that mortgage payment, then one little incident can put you over the top."
See the chart below for my analysis. The number of sales and average sale price is what Metropolitan Regional Information Systems recorded during the first six months of this year. Remember, I calculated affordability off a 7 percent interest rate (the average, including fees and points, at the end of the first half of the year) and a 10 percent down payment. (Squinting at the chart? Adjust the size with the magnifying glass.)
Keep in mind that sales prices in some communities range a lot. If the average is out of reach, you might still find a home you can both like and afford.
Wonk option: Click here for an Excel version, which will allow you to change things to fit your situation. If you'd like to know where a $50,000-income buyer could swing a purchase, click on one of the income columns and change the income figure (whether 90000 or 60000) to 50000. Voila! (Just remember to paste your new formula all the way down and not only in the first row.)
Likewise, you can change the number in the interest-rate column. Or, if you want to put down more or less than 10 percent, you can hop into the "90% of price" column and change the 0.9 to, say, 0.8 (that'll reflect what you'd need to borrow with 20 percent down) or 0.97 (for a 3 percent down payment a la FHA).
Then you'll want to check out the Real Estate section's guide to local permit offices, which notes what it's like to navigate the Baltimore and suburban departments and what you'll need to bring with you.
It offers other tips as well. The one that made me grin? "Don't go when you're cranky."
Tomorrow's How-to Monday: Where a person without a ton of home equity can afford to buy in the region -- complete with chart and Excel file! (You know you're a wonk if the phrase "Excel file" brings on a "woohoo!" rather than a "doh.")
The timing seems appropriate, considering all the chatter here at the end of last week about home prices vs. incomes.
Just over 1,000 adults were asked this question: "Which of the following economic problems concerns you the MOST -- the price of gasoline, the availability of good jobs, high taxes, or the problems due to the mortgage crisis and falling home values?"
Thirty-five percent said the price of gasoline, 28 percent said the availability of good jobs and 18 percent each picked taxes and mortgage crisis/home values.
The two economists behind the closely watched S&P/Case-Shiller home price index appear to have different points of view about where prices are headed.
The Wall Street Journal notes today that though Robert Shiller "is among those who think it will be some time before prices stabilize," Karl Case "thinks that the housing market may be near a bottom."
At its most recent reading for June, the Case-Shiller index was 19% below its July 2006 peak, and many analysts say the decline is far from over. The inventory of unsold homes on the market is still very high, they point out, and until that excess is absorbed, it is a buyers' market. Moreover, financial firms, hobbled by mortgage debt gone bad, are trying to rebuild cash reserves, making the firms less willing to extend loans to would-be buyers. ...
But in a paper presented before the Brookings Institution in Washington yesterday, Mr. Case argues there is cause for optimism. He notes that of the 20 metropolitan areas covered by the Case/Shiller index, nine have shown prices slightly improving in recent months. He also says that the relationship between incomes and home prices has neared a level seen at the end of past housing slumps.
Today's story about home sales includes information about the recent drop in mortgage rates, in case you've been wondering where things stand:
Benchmark 30-year mortgage rates dropped from a national average of 6.3 percent Friday to 6 percent yesterday, according to financial publisher HSH Associates, thanks to the weekend announcement of the takeover of Freddie and Fannie. That's a big drop in a short period of time - considering that rates were 6.5 percent a week earlier. For borrowers, a drop in rates of half a percentage point means nearly $100 a month savings on a $300,000 mortgage.
Whether that will translate into more home sales -- or affect prices -- is anyone's guess.
Dean Baker, co-director of the Center for Economic and Policy Research, says he continues to expect that prices will fall in many places, Baltimore included. "It won't be one of the worst-hit cities -- it's not going to be a Miami or San Diego -- but I'd be very surprised if you didn't see a substantial price decline there," he told me.
Some of you watching the averages and medians, and thinking it doesn't seem like a substantial drop yet, have wondered when, if ever. Economists predicting declines chalk it up to delayed reactions and sellers holding out as long as possible. (As some sellers who have taken a haircut will tell you, averages and medians don't always reflect what's happening to individual properties.)
Another perspective comes from The PMI Group's most recent "Market Risk Index," which uses first-quarter data. It considers the Baltimore metro area at pretty low risk of price drops in the next two years. (California and Florida metro areas top the risk list.) PMI bases its predictions on past home prices, affordability and unemployment rates.
Those who guessed that August prices in the Baltimore metro area would drop below two-year-ago levels were more or less on the mark: The average price last month was $317,500, down 1.7 percent from a year ago and 1.8 percent from two years ago. The median price last month was $275,000 -- exactly the same as two years ago.
Sales fell 29 percent from a year ago. It's the first time since August 2007 that the year-over-year drop wasn't at least 30 percent, so you might count that as a smidge of change.
Average prices rose about 3 percent in Baltimore from a year ago but sales there dropped a larger-than-average 35 percent. In case you're wondering: The 430 homes that changed hands last month is about a third of the sales the city had in August 2005, at the height of the boom.
The drop isn't quite as steep in the 'burbs, though it's still a sizable decline. Baltimore County, for instance, saw half as many sales last month as it did three years earlier.
Live Baltimore Home Center's second "Buying Into Baltimore" event of the year is this Saturday, and folks at the nonprofit say their pre-registration numbers are through the roof. About 760 had signed up to attend by late yesterday, up from 400 a year ago.
"It shows something -- either curiosity or folks very interested in the $3,000 assistance toward closing costs," says Teresa Stephens, Live Baltimore's marketing director.
Buying Into Baltimore is part home-buyer education, part housing tour. But what about that $3,000, you ask?
The grant, which can be used toward a down payment as well as closing costs, goes to the first 50 people who sign a contract after the event to buy a home in the eastern half of Baltimore. To qualify, buyers must see at least four of the 16 east-side homes on the tour and get housing counseling (plus settle within 90 days of Saturday's event). There's no requirement to buy one of those tour homes, by the way. See more details about the $3,000 grant HERE.
A lot of the pre-registering callers are asking about those grants, so that's clearly part of the reason for the increase. Before mortgage standards began tightening last year, it was much easier to get a no-money-down loan.
The event starts at 9 a.m. Saturday at Baltimore City College High School, 3220 The Alameda.
For Wonk readers more convenient to Prince George's County than Baltimore: A foreclosure-prevention event is scheduled for this Saturday at Watkins Regional Park in Upper Marlboro. The PMI Group, which is sponsoring it with the HOPE NOW alliance and the National Community Reinvestment Coalition, says a number of big lenders will be on hand to talk to borrowers.
The event will run from 10 a.m. to 6 p.m. at the park, 301 Watkins Park Drive. Go to the "Save the Block Party" event site for more information. PMI suggests showing up a couple of hours BEFORE the event starts if you want to make sure you'll get to sit down with a lender.
UPDATE on 9/18: PMI's press release said it was one of the event sponsors, but it got back to me today to say that actually, it wasn't; it was a participant and wanted to get the word out.
Thirty-year fixed rates dropped about a quarter of a percentage point by Monday and may head lower, said Keith Shaughnessy, president of Foundation Mortgage in Littleton, Massachusetts. The average 30-year fixed is now 6.08 percent, according to Bankrate Inc., a research firm in North Palm Beach, Florida.
Photo of the 39 West Lexington apartment building by Sun photographer Kenneth K. Lam
Good news, apartment-hunters: The slump in home sales and rise in foreclosures haven't meant skyrocketing rents. Many landlords are increasing monthly rental costs more slowly than usual.
Average rents rose 2 percent in the Baltimore metro area from a year ago, to about $1,090, according to M/PF YieldStar, which tracks the multi-family housing industry. Annual increases are typically at least twice as big, says Greg Willett, the company’s vice president of research.
Why the slowdown? The housing slump, Willett says. Yes, the trend that apartment owners thought would work to their advantage.
Problem is, a number of people who would like to sell their houses, rowhomes or condos are having no luck and renting them out instead. Some are investors; some are regular homeowners who had to move. Their properties add to tenants' choices and keep rents from rising at a normal clip, even though the ranks of renters have grown.
"The slowdown in the economy is part of it, but the job numbers don’t look that bad for Baltimore — it’s more [the] competition from the 'shadow market' products," Willett says.
Rent growth hasn't been so pinched in downtown Baltimore, though. Monthly rents there are up 4 percent to about $1,770, Willett says. This comes despite competition not only from an active shadow market but also five new apartment complexes within a mile of Pratt and Light streets.
"Demand for downtown housing is not slowing down," says Bob Aydukovic, vice president of economic development for the Downtown Partnership of Baltimore. "All else being equal, ... we're going to be coming to a point where there are not a lot of available units out there, period. There is virtually nothing under construction, save for a few hundred units, that's going to deliver in 2009 and 2010."
Downtown Partnership, which surveyed large apartment buildings last month, said occupancy rates downtown have risen to 93 percent. M/PF YieldStar said its research shows a downward trend to about 88 percent occupancy, which it blames on that 4 percent increase in rent.
"Some of that product is just being overpriced," Willett says.
By the way, M/PF YieldStar tracks how rents have changed among the same properties, so its numbers aren't being skewed by pricier newcomers. (That's my one wonkish aside for today, I promise.)
So what about the shadow market? M/PF YieldStar, looking at metro areas across the country, has found that those rents tend to be on par with top-tier apartments. Willett says there's no way that covers mortgage payments for landlords who bought in the last few years, when housing prices eclipsed rents.
Keep that in mind if you're a renter looking for a deal. When landlords ask you about your financial situation, you might return the favor. It's a hassle at best if you’re forced to move because the guy you're paying rent to got foreclosed on.
I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing. Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.
To promote stability in the secondary mortgage market and lower the cost of funding, the GSEs will modestly increase their MBS portfolios through the end of 2009. Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size.
Stay tuned for an announcement this afternoon about how regulators plan to "effectively take temporary control" over mortgage financing giants Fannie Mae and Freddie Mac, The Wall Street Journal reports today:
The Treasury won't necessarily make a large injection of capital immediately into the ailing companies, which provide the bulk of funding for U.S. home mortgages. But people familiar with the plan said the Treasury will stand ready to provide capital as needed, depending how quickly losses deplete the companies' meager capital holdings.
The Federal Housing Finance Agency, Fannie and Freddie's regulator, is to use its legal powers to put the companies under conservatorship. Those powers allow the FHFA to run the companies indefinitely, under certain conditions, such as when the regulator finds that they are likely to be unable to meet their financial obligations. Fannie and Freddie have run up combined losses totaling about $14 billion over the past four quarters and face heavy additional losses amid the worst surge in U.S. home-mortgage foreclosures since the 1930s.
The Maryland borrowers behind on their loans -- including those in imminent danger of foreclosure -- are not only folks with shaky credit. The numbers of prime and subprime borrowers who fall into this category are almost exactly equal -- about 35,000.
The share of prime loans that have headed south is much lower than the share of subprime loans in trouble, but the former still set a record: more than 4 percent this spring. I have a full story in today's paper.
The Baltimore Homeownership Preservation Coalition is putting on community workshops for homeowners, offering advice about how to proceed if you're behind on your mortgage or think the possibility looms.
The next "Mortgage Matters" event is this Wednesday the 10th from 6 p.m. to 7:30 p.m. at the Northwood Branch of the Enoch Pratt Free Library, 4420 Loch Raven Blvd. More details and later sessions HERE.
You're an opinionated bunch, so why leave the housing-market predictions to the economists? Step right up and guess which direction Baltimore metro area home prices headed in August, the figures that Metropolitan Regional Information Systems expects to release this Wednesday.
You'll notice I don't specify median or average in the poll below -- that's because everyone has their own preference. Well, every wonk. So you pick. To get you started, keep in mind that the average home price was $323,134 in August 2007 and the median was $279,900. (You can see past price figures at MRIS.)
UPDATE as of 8 p.m. 9/9: Three-quarters of you think prices will be down from a year earlier. Ten percent think prices will be down vs. two years ago, 12 percent think prices will be down vs. three years ago and 2 percent think prices will rise.
Based on the support of a residents' group called the Bowleys Quarters Improvement Association, Joseph Bartenfelder, the county councilman in whose district the peninsula lies, introduced the condo project as a PUD.
The looser designation infuriated other residents, who formed a second group, the Bowleys Quarters Community Association, specifically to wage war against the project and stop "potential unrestricted overdevelopment of the area," its Web site says.
Fitch Ratings, in a research report out this week, has a sobering prediction about option ARMs, those adjustable-rate mortgages that allow borrowers to -- for a time -- make monthly payments so low that the total loan amount grows rather than shrinks. Watch out, Fitch says, when the loan terms "recast" to require borrowers to pay the normal amount:
Of the $200 billion of option ARMs outstanding, Fitch Ratings expects roughly $29 billion to recast by the end of 2009 and an additional $67 billion to recast in 2010. The potential average payment increase on this recasting population is 63%, representing on average an additional $1,053 due each month on top of the current average payment of $1,672. Data suggest that these large payment increases could cause delinquencies to more than double after recast.
Fitch, quoting LoanPerformance data, says option ARMs accounted for at least 40 percent of all "nonsubprime," non-Fannie and Freddie securitizations of adjustable-rate loans in both 2006 and 2007.
The city's property tax rate is more than twice that of Maryland's counties. Basu argues that a guarantee of big cuts over time would get the city out of its "classic Catch-22": With its population losses, the city needs a high rate to balance its budget -- which in turn drives more residents out. He writes:
The mayor and City Council should simply make a promise to the people of Baltimore that an irreversible path of tax slashing shall be pursued. Each year, City leaders should guarantee a 2 to 4.5 percent reduction in property taxes per year. Severe penalties for failing to deliver on this promise should be established, including total forfeiture of annual compensation. The only exception would be in the wake of an act of God, for instance a Katrina-like event.
What’s remarkable about this promise is that it can be kept without too much difficulty. A credible promise of tax reduction would bring new residents and investors to Baltimore City even before the current tax rate was reduced substantially. The accompanying new tax base would under most scenarios more than offset the loss in revenues from tax rate reduction.
For those of you who can't get enough predictions about where home prices are going: CNNMoney.com's look-up tool suggests a 10.3 percent drop this year and a 7.2 percent drop next year in the Baltimore metro area.
I've seen a variety of forecasts calling for price drops. I don't recall any -- except for one early this year from the National Association of Realtors -- suggesting that the worst is over for sellers and prices will soon stabilize or rise. Have I missed them?
Mortgage rates aren't what they used to be — and not just because they're higher.
You can normally predict the going rate for a 30-year fixed mortgage by looking at the yield on 10-year Treasury notes. If the yield's 3.8 percent, as it was in the middle of this month, you'd expect mortgage rates would be a bit less than 5 ½ percent. Instead, they were hovering around 6 ½ percent.
As Treasury yields dropped earlier in the summer, in fact, mortgage rates stayed steady or even rose. Joseph Bell, a Wonk reader who’s thinking of buying a house, wonders: "Is there any reason for this?"
Oh, you wanted to know what the reason is? (So much for an easy post. Can't a wonk get a day off?)
Keith T. Gumbinger, a vice president at financial publisher HSH Associates, sums it up like this: "Risk means higher rates."
Lots of people wanted to invest in mortgages back when home prices were rising faster than a helium balloon. Now, with prices falling and delinquencies multiplying, investors still willing to inject their money into the mortgage markets want a better return to make up for the risk.
Concerns about the health of Fannie Mae and Freddie Mac, the big buyers of mortgages, are also driving up rates. So are the additional fees Fannie and Freddie have been levying.
The difference between mortgage rates and the 10-year Treasuries isn't the biggest it has ever been. But "it is unusually wide," says Greg McBride, senior financial analyst at Bankrate.com.
Mortgage rates tend to move in concert with 10-year Treasury yields because "T-Notes" are a benchmark for the cost of borrowing, Gumbinger says. Treasuries, the government’s primary method of borrowing, are guaranteed to be paid back, so mortgage rates are set higher to account for the added element of risk. (Most homeowners refi or sell long before 30 years, hence the use of the 10-year note.)
What about the Federal Reserve, which sets the rate banks charge each other for overnight loans? Well ... its effect on mortgages is complicated.
The Fed raises rates to combat inflation and lowers them to avoid recession, but it's now faced with rising inflation and a slow economy. Since April it's kept its rate steady — potentially adding to inflation. And when the cost of living rises, so do mortgage rates because investors don’t want to lose ground, Gumbinger says.
All this means borrowers are more likely to see rates go up than down for the rest of the year, both Gumbinger and McBride say. Gumbinger thinks rates could go as high as a half-percentage point above where they are now.
But McBride says buyers shouldn't panic.
"With home prices still sliding, that removes some of the urgency for borrowers that would otherwise be laser-focused on the movements of mortgage rates," he says. "Buy a house when you're ready."
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
• Baltimore Sun articles by Jamie