I'm looking to drop 20% on a 250K house in the Baltimore County area. I make something in the 60s and am willing to lay out a little less than a paycheck/month towards mortgage, taxes, and insurance. I find that there are plenty of options! No reason I can't get into a 3 br/3ba in either a rancher or colonial somewhere around the beltway or a nice townhouse outside the beltway at that price. That was unthinkable three years ago!

I'm in the process of buying a condo in BC now (I close next Thursday) that I could have never affored 2 years ago. I was able to get it for about ~$30,000
less than the price it would have sold for 3 years ago. I even got an additional 4% to close! My offered was initally rejected however a few days later the sellers rethought and accepted my offer.

I must say that I am thrilled to be able to have my dream home and to actually be able to afford it.

A decrease of only 10% is not even close to clearing the housing market in the Baltimore metro area.

The rule of thumb for housing market stability is that the median home price should be no more than 3X median household income. Historically, the Baltimore metro area has been more like 2.5, but 3X is financially feasible for many people.

According to many studies, Baltimore now ranks as one of the least affordable markets in the nation, although we have just in Q4 2008 and Q1 2009 begun to see meaningful price declines.

The Demographia International Housing Affordability Survey, Baltimore in Q3 2008 was "seriously unaffordable", with a ratio of median house price to median house hold income of 4.2, implying that a drop in prices of roughly 28% was in order.

http://www.demographia.com/dhi.pdf

And John Burns' famous real estate barometer has the Baltimore metro area tied as the second least affordable in the country at this point!

http://www.realestateconsulting.com/Intelligence.aspx?quicklaunch=true®ion=hcb

In the line of work I'm in, I've seen banks foreclose on many, many more houses in the Baltimore metro area than they are listing on the MLS. I would estimate that virtually half of Pigtown, for example, is in some stage of delinquency or foreclosure. Even supposedly "well established suburbs" which "hold their value well" are getting hit pretty hard. But the banks are withholding this inventory. That's the 800 pound gorilla of which people are either blissfully unaware, willfully ignorant, or downright petrified.

That's the next shoe to drop. All of those interest only loans and "pick-a-payment" mortgages (i.e.option ARMs) that were passed off as viable financial instruments over the past decade are just now really starting to blow up. I've seen it and it isn't pretty.

If I were to make an educated guess, I would say that Baltimore has at least another 30% to drop (that's assuming that we don't overshoot the long-term trend line).

When you see first time homebuyers who make good money, have impeccable credit, and have 20% to put down looking at spending half of their monthly income on a dump in a questionable neighborhood, you realize that we have more than a "slight correction" in our future. And the foreclosures which will eventually spew forth onto the market are the vehicle by which the market will ultimately correct.

Thanks, everyone, for your comments. I'm always interested to hear people's experiences with the housing market and what you're noticing about prices, foreclosures and the like.

I agree with "someone" above. Houses are not affordable and are outrageously overpriced in Maryland. Outrageously. Who cares. People will still buy them. Look at the joke of the "stress tests" on banks. Turns out if you allow a bank to mark its assets to whatever they want, give them whatever amount of money they need, allow them to also "borrow" for free and loan out the money at whatever interest rate - - life is not so stressful. It is fuzzy math but who cares. Apparently no one. The only people who even understood what just happened are bankers and financial people and it is in their best interests to pretend. Oh well....What's the next bubble in?

Someone:

The data you cited was from Q3 '08. Things have changed since then, and if prices dropped 10-15% since then and the median wage has risen by 2%, then we would be between 3.4-3.6. That means your statements of more than another 10% decrease would hit your multiple of 3 (which you said was acceptable) (e.g. 50 x 1.02/(200 x .85) and your theory of 30% woudl put us at 2. (50 x 1.02)(1.04)(200 x .85)(.7) like Youngstown.

Secondly, with a city like Baltimore it is important to consider more than the median income. We are dealing with a large class of impoverished people who skew the data away from making a neat bell curve. Do the bell curve with the upper 50th percentile separately from the lower 50th percentile? I don't know, but someone would have to do more sophisticated analysis before throwing out blanket statements using just the median income.

I'm not sure what Burns uses to determine why a 31% HH income ratio should make Baltimore more suspectible than Honolulu with a 66% ratio or the many other cities with far higher ratios. He seems to imply that this is higher than the historical norm, but this doesn't mean much, if anything. Cities change.

Your assessment about Pigtown is probably correct. But I'm note sure how much of a keystone that is to Baltimore or the metro, in spite of the fact that safer neighborhoods have experienced foreclosures.

Perhaps a little inflation will ease the systemic damage?