Report: Expect significant drop in Baltimore home prices
Deutsche Bank economists think the country as a whole has already ridden out the majority of the home-price decline it's going to see. But most of Baltimore's price drop, they believe, is yet to come.
A June forecasting report by the company lists us as one of the metro areas with the "largest expected future depreciation." It projects that Baltimore prices will drop almost 29 percent from the beginning of this year to the "trough," whenever that might end up being. That puts us No. 6 on the biggest-expected-drop list, after New York, Fort Lauderdale, West Palm Beach, Salt Lake City and Miami.
Add in the drops the Baltimore area has already seen, and the economists expect a total price decline of about 37 percent.
Why? "Affordability is the main factor that puts Baltimore on this list," the economists write. They say Baltimore is one of the relatively few metro areas in which prices are still too high for typical family income.
By contrast, the economists project a 14 percent drop for the United States from the beginning of the year onward, for a grand total (peak to bottom) of about 42 percent.
The report considers affordability first and also looks at the amount of distressed property for sale, at unemployment, at the change in unemployment and at "home price momentum" -- that is, which direction (and how quickly) prices are moving. "Home price trends are highly self-perpetuating — downward movement begets more downward movement, and vice versa when prices are increasing," the economists write.
So, even though many metro areas are as affordable now as they ever have been (thanks in part to low interest rates), Deutsche Bank doesn't think the housing market has hit bottom yet:
Unfortunately, affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices reach their trough. The bottom is getting closer, but we are not there yet. ... Foreclosures are still running at a very high pace. The U.S. unemployment rate is now 9.4%, and Deutsche Bank economists see that rate exceeding 10% by early 2010. While home sales activity has picked up in some regions, much of it reflects clearing of distressed inventory and is accompanied by falling prices.
Have you seen other recent home-price forecasts? Let me know so I can share them with everyone.
The Deutsche Bank economists also address an issue that several of you have been chatting about here in recent days: What impact do mortgage rates have on price?
Clearly, higher mortgage rates will reduce affordability; for markets that are only barely affordable now, the rate increase could put downward pressure on prices.