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April 22, 2009

Another opinion on Baltimore-area housing values

One more volley in the debate about home prices: IHS Global Insight suggests in a new report that housing in the Baltimore metro area is pretty close to fairly valued.

The economic forecasting firm says its number-crunching, which takes historical values into account, puts prices in the Baltimore metro area at 2.9 percent overvalued at the end of last year. That's within IHS Global Insight's margin of "historically normal."

By contrast, the metro area was 11 percent overvalued last summer and 26 percent overvalued at the peak of the housing frenzy in 2005, the company says.

According to the report, out this week:

Extreme overvaluation is now essentially nonexistent. Only Atlantic City, New Jersey met our definition for extreme overvaluation during the fourth quarter, a sharp contrast to 2005 when 52 metro areas were judged to be extremely overvalued. For the country as a whole, the housing market is slightly undervalued. When the 330 metro areas are weighted by market value, the nation is 8.4% undervalued. When weighted by housing units, the nation is 10.2% undervalued.

What numbers did the company crunch to come up with this evaluation, you ask? OK, fine, maybe you're not asking, but here's the answer anyway:

Our approach to determining statistically normal house values considers not only house prices and interest rates, but household incomes, population densities, and any historical premiums or discounts metropolitan areas have exhibited over time.

Looks like you have to sign up on the company's site to get the report, but you can see the press release here.

I'm getting the sense from agents and house-hunters that price range matters when it comes to sorting out whether values (or at least asking prices) are fair. One reader commented on yesterday's post about home prices vs. incomes: "We still feel priced out of the market and have been looking to buy a home in the $320K range."

Are there price ranges where the homes seem undervalued? Or where many of the properties on the market seem overpriced? And what -- as Goldilocks would say -- seems just right?

Posted by Jamie Smith Hopkins at 9:31 AM | | Comments (2)
Categories: Housing forecasts
        

Comments

Too bad there is not a Case-Shiller chart specifically for Baltimore. Nevertheless, look at charts for cities that are tracked, and observe how the cities that went bubble-manic first are the ones fast approaching last 1990's pre-bubble prices.

Baltimore was late in the game by a couple of years, and is lagging in the drop. I still believe that 1997-98 prices are coming, and given the marked deflationary forces now in play, I think (and hope! ) that these will be nominal prices. In other words, a home that sold for $300 K in 1998, then $750K in 2006, will again be $300K by 2102. This is even more likely if these currently very low mortgage rates start to rise. Prices will have to give in for sales to occur.

The low mortgage rates have been a major sales pitch for the realtor scumbags and cronies for the last 20 years. The jig is up.

Bottom line, as Warren Buffet says: "The price you are paying is the ultimate determinant for the rate of return that you'll be earning."

Market forces are trying to prove him right. Baltimorons are hoping Uncle Obama and Co. can stop this huge force. We shall see.....

The question I ask myself is how much do I pay attention to the asking price on a home, and how much stock do I put in my own valuation?

We lost out on three row homes we were interested in in Baltimore City. The first was in Bretton Place, a part of Guilford near Greenmount Avenue featuring tudor homes. The asking price of this home started out at $390K in late 2007. The sellers ended up pulling it off the market. Then in the Spring of 2008 it went for $380K, despite having an asphalt roof which would need to eventually be replaced with a Slate one. I was dumbfounded the price only slid $10K.

The next house we looked at was also in Guilford, a three story brick row home that was was listed for $340K but which needed work and upgrading. To us the price of this home was really $380-390K after one put the necessary money into it.

By the time we thought of putting a bid in at $290, the house was under contract for $300K. Had this home been priced at $300K to start with, it would have been snapped off the market. We might even be living there now.

Finally, we put a low ball bid on a three story brick row home in Oakenshawe, but lost out to another buyer.

As I see it, Sellers cannot help but want prices from circa 2007-08 --- and I feel that pricing reflects this desire --- and so buyers essentially have to bid a house down or over pay. To me, this is what I see happening in the baltimore market right now.

In my fantasy world, I get a 2007 price for my home, and acquire a new home for a 2003 one.

I suppose this makes me part of the problem...

Mostly I don't want to overpay for the home we get while discounting the house we're selling.

In sum, making offers is difficult in this climate.

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About Jamie Smith Hopkins
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
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