Q&A: Ross Mackesey
Q. So — what is going on with the local housing market? What's happening to values?
I'm trying to get to the bottom of it, what really is going on in the market. And what we have found: In those mature first-time buyer neighborhoods, [for instance] the old section of Mays Chapel, ... [townhomes] sell for under $250,000. The prices are very stable, if not going up a little bit. In the same general vicinity, in the larger houses that Pulte built subsequent to those in Chapel Gate, ... those are also townhouses — much, much larger, and sell in the late 3's and early 4's — and they have come down in price, 4, 5, 6, 7, 8 percent. So that's just an example where you are side by side, two different buyers.
In our market, not many people start off buying a $400,000 house. So that does tell you that the part of the market that's working [is] those first-time buyers.
In Baltimore City, there's plenty of [investor] product. ... They have renovated those houses and we are selling them to those first-time buyers. So it's not as if we're getting listings that other first-time buyers were living in and they were going to move up. We're whittling away at the inventory.
Harford County's numbers show that BRAC is starting to work. ... Anything over $450,000 was just dormant in Harford County; we're starting to see a little movement in that $300 to $450, $300 to $500,000 price range. Which indicates to me that the people that are coming are the higher-ups.
So Harford County — it still has months to absorb; it's still over 10. But they actually sold more houses, one more house in December [than a year ago].
Q. Sales are up significantly in Northern Virginia. Why?
In Prince William County and Loudoun County, ... you had a lot of new home development and a lot of subprime buyers. They have a major foreclosure issue there. And that's why you're seeing the prices dramatically down. ... Everybody is losing value, but the foreclosures are really driving the market over there. Just as a company: We have probably four offices in that general vicinity — we're doing over 100 REO [bank-owned] properties a month. We're listing them. But we're selling a bunch of them, too. So that is really stimulating that market.
Q. Who's buying those foreclosures? First-timers? Investors?
Both. It's an affordable product.
Q. You point out that Harford County has more than 10 months of housing supply, meaning that at the current rate it would take that long for all the homes now on the market to sell. That's true of the Baltimore metro area as a whole. So what does a "normal" market look like?
A lot of people used to say that a market in equilibrium was six months. I have queried lots of people who put that out there, and they don't back it up. I believe a market is more than supply and demand — or, demand is influenced by more than the amount of inventory. I think that interest rates have a huge influence on demand, and the type of product. ...
You really have to break it down by the demographics of the buyer pools. I mean, right now in Baltimore City, if you want to buy a $170,000 house, you're not going to get people begging you to buy. If you are going to [get] an $800,000 house in Baltimore City, they'll beg you to buy it.
If you track the contingent contracts, in Baltimore City, we're down to only 6 percent of the contracts are contingent.
Q. What conclusion do you draw from buyers overwhelmingly opting for contracts that aren't contingent?
That it's the first-time buyer that doesn't have the baggage of a house to sell. Typically if you have a house to sell, and you put a contract in on a home, that's not as strong a contract as somebody without a house to sell. Therefore you typically pay a premium, and that supports pricing. ... If you bring me a cash deal, settle in 30 days, I'm going to sell it to you for less. I know that I have a deal.
Q. Average sales prices have stayed steadier in the city than the suburbs. Does it have anything to do with the types of homes selling?
I think that our market has been buying houses that have been rehabbed, and they're more valuable than they were before they were rehabbed. ... The higher end — the North Shores, and the Ritz and the HarborView, the Pier Homes, those types of properties — they've taken a beating.
Q. Is it, as the National Association of Realtors says, a great time to buy?
It really depends — houses are places to live. If you are moving up, then it's a good thing, particularly if you live in a first-time buyer type product, where the prices are fairly stable. ... Then you can get a benefit at the higher end. But then it begs the argument, where is the higher end going to settle out? We're comparing everything to what people were paying for those properties in 2005 and '6. Should we be doing that? What's a fair market value for that property going to be in a couple of years? ...
It's a very individual thing, and that's why I'm at odds all the time with NAR, because it's very difficult to support some of the drivel that comes out of their mouth. I prefer to boil it down to talking to the individual and [understanding] their lifestyle and what makes them feel good.
I think that we convinced ourselves that there was a free lunch, and there isn't, there never has been. We were 'entitled' to a place to live that was an ATM machine and mysteriously kept spitting out money. I think that ... in most markets around here, in our region, we have paid the price. There [have] been the readjustments, and unfortunately, there are still a lot of foreclosures that are going to happen.
Q. What's happening to real estate agents in this sales environment?
Those people who are in this business as primary breadwinners, they rise to the top. And the — I hate to use the word part-timers in a derogatory sense, but those who just use it for funny money, somebody who does it because they pay for the family vacations with their one transaction a year, they're falling left and right. And we needed that, because everybody was getting a real estate license. The growth in licensees was incredible in the beginning of the decade. So there's a thinning process going on. ...
If you're active in this business, you have $1,500 in expenses a year. ... If you are sitting on the sideline not doing any business, then that becomes onerous.
Q. You know Federal Hill best. What's happening there?
Federal Hill, because it was the first of the city neighborhoods to get rehabbed, ... has less speculation than other neighborhoods; it is holding up fine.
The ZIP code, which goes well beyond Federal Hill, has taken somewhat of a beating. Because in times of growth and appreciation, both in Canton and in Federal Hill, Realtors pushed the neighborhood out. "Federal Hill south." ... So the core in Federal Hill has done much better than that periphery. Same thing happened in Canton. ...
We have too much to choose from. That's what inventory does. It allows you to be where you really want to be. You don't have to settle for something a couple blocks beyond the boundaries.
Q. Are buyers out there?
I just looked in our little microcosm here — we have probably three times as many appointments in the next three days as we've had in three months for a weekend. People are out there, wanting to look at houses. ... Whether or not people are going to pull the trigger is yet to be seen.
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Comments
Interesting conversation. About what I would hasve expected.
I did not realize there were a lot of "part time" agents.
Posted by: bdc | February 2, 2009 3:42 PM
A quarter of a million dollars is not an appropriate price for the vast bulk of would-be first time home buyers.
According to the Maryland Association of Realtors (see link below), the median household income for first time buyers was $39,139 for 2007. This will most likely drop now that we're officially in a severe recession. However, assuming it stays stagnant, the price is still too high.
Assuming a $250,000 price, a 10% down payment, an interest rate of 5.5%, an assessed value of $250,000 at Baltimore County's 1.1% property tax rate, and $500 a year in homeowner's insurance premiums, the total monthly payments will be $1,628.36.
This figure amounts to roughly half of the median first time buyer's gross monthly income, far, far above the traditional "upper qualifying limit" of 28% of gross monthly income. In other words, the typical first time home buyer cannot afford a quarter of a million dollar house.
That's crunching the numbers, and they are unambiguous:
http://www.mdrealtor.org/LinkClick.aspx?fileticket=ImOkxr0LlBc%3d&tabid=160&mid=585
So what does it mean? Homes in Maryland are still "severely unaffordable":
http://www.demographia.com/dhi.pdf
In fact, according to one measure, Baltimore is now the second least affordable market in the entire country, trailing extremely closely behind only Edison, NJ:
http://www.realestateconsulting.com/Intelligence.aspx?quicklaunch=true®ion=hcb
The simple fact of the matter is that these houses which are now listed at $250,000 were selling in the low to mid $100's before the bubble. Since people's incomes have not more than doubled and we are returning to rational lending standards, the prices will have to fall. I would speculate (no pun intended) that the vast majority of these sales are investors who have not yet been sufficiently burned. Their time is coming.
There will be no recovery in the real estate market or in the economy until house prices come back down to reality. A quarter of a million dollars for a 50 year old townhouse is a joke, and anyone who has been around the market for as long as Mr. Mackesey should know better.
Posted by: A concerned onlooker... | February 2, 2009 9:49 PM
I agree with "concerned". House prices are still way too high and need to come down to 2003 levels before they are reasonable.
Posted by: verycreative | February 3, 2009 3:53 PM