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August 3, 2009

Calling the bottom of the housing slump

It's always easier to pinpoint market highs and lows well after the fact -- hindsight being 20-20 -- but The Associated Press thinks it's now safe to say the "worst is over" for housing.

Here's its argument:

By every measure, except foreclosures, the housing market has stabilized and many areas are recovering, according to a spate of data released in the past two weeks. Nationwide, home resales in June are up 9 percent from January, on a seasonally adjusted basis. Sales of new homes have climbed 17 percent during the same period. And construction, while still anemic, has risen almost 20 percent since the beginning of the year.

Even home prices, down one third from the top, edged up in May, the first monthly increase since June 2006.

The AP story notes that many economists aren't expecting a quick upturn -- just that things probably aren't going to get worse for homeowners.

Do you agree with this conclusion for the country as a whole? What about for the Baltimore metro area?

Home sales in the metro area (in case you need the reminder) rose 2 percent in June vs. a year earlier, according to Metropolitan Regional Information Systems. Average prices fell 10 percent. There were about 18,800 homes on the market, just under eight for every one that sold that month.

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (23)
Categories: Housing forecasts


I can't say I agree with this yet. There are just too many problems out there that are causing issues with housing. The sub prime mess was the first bomb on the market. Now with unemployment around 9%, you will most likely see additional foreclosures (which will bring down the market), and job uncertainty (which will make people think twice about buying for some time). The third possible issue with housing will be the effect of these "option" loans that are going to be resetting soon. I think the Baltimore area is more insulated by most of these factors given the proximity to DC and lot of the related jobs in Baltimore. Therefore I don’t see another big drop, but I wouldn’t think prices will keep moving up in the near term.

Until the unemployment rate drops, I don't see a stable housing market. I know things have leveled off a bit, but I attribute that to the first time homebuyers credit and affordability coming down in most markets.

How long has it been since the last time we had this discussion?

Has anything dramatic happened in the RE or credit markets to change things since then?

MrRational, I figured with all the recent "slump over!" chatter, you folks would be raring to discuss and debate.

Perhaps, but what happens to the momentum when the first time home buyer program ends?

In my opinion the housing market is like the stock market and consumer confidence has a lot to do with how the market fares. With low interest rates and housing prices near "affordibility" standards buyers that want to buy are jumping in. I don't know if we are near the bottom but the days of Year over Year declines in the 20-30% price declines are over. As I have said before housing prices in good areas are holding up well and will continue to in the future. While "transitional" neighborhoods have adjusted to their true values.

We will never see a housing market of 2005-06 again where it seemed home building actually outpaced population growth. The "Real" housing market is back where people actually put $ down to buy their home and can afford to.

Jamie, RE will be the last portion of the economy to recover because the other portions need to be in place first (jobs, credit, etc).

Then there is the nitty gritty of clearing the deadwood from the market that even with jobs and credit will still take another year to work through; some areas longer (I'm in Ft Myers Fl right now and man is it bad down here).

All those ancillary aspects will continue to drive prices down (perhaps at a slower pace...) until all those aspects have been resolved.

I would not call a bottom just yet. Wait until Oct/Nov time frame when the $8K tax credit goes away. Down here in NE Florida, realtors are saying the buyers have come out of the woodwork and the tax credit has alot to do with that. I even decided the time was right and have a contract on a new house to close in Oct.

I don't think this is the result of a market bottom, but rather a result of government throwing a ton of money at the problem. Low interest rates and free money will get people into any market.

Cash for clunkers is exactly the same thing. People take the free cash to buy a car and then finance the rest at extermely low interest rates. While that sounds great, I don't think anyone would say the "American auto company problem" has been fixed.

So with the real estate market, low interest rates and an $8000 tax credit are causing people to buy homes, but some of the real problems still remain. Forecolsures are high, unemployment is high, and prices are high when compared to income. Evetually those issues have to be resolved. It will be interesting to see what happens next year.

The problem with what appears to be a stabilizing of the market is that most of the homes being sold are foreclosures which are selling for bar below what other homes on the market are selling for.

The average homeowner can not sell their homes for what the banks are selling. The increase in closings and pending sales is by far an increase in foreclosure sales from the banks.

The banks are sitting on a ton of inventory, and they are not releasing it all. I suspect one reason why the banks are not selling all of their inventory is to not compromise the performing mortgages that they have. If they drive values down another 10-20 percent by blowing their inventory out, those with mortgages and not walking may be tempted to walk.

Foreclosures are up at record high's, there is no way the real estate market can be recovering with such a statistic. If the first time buyer tax credit were to go away, the sales that are taking place will dry up.

I do not think the BAL market has reset. Using my own household as a barometer, our home equity is diminished, our stocks are down, and our income is down.

My wife is at a firm that never had layoffs, but in 2009 three (3) of her coworkers were let go some four (4) months ago. Only two (1) of them found a new job. My brother has been laid off now for over three (3) months as well.

Maybe we've stopped an economic free fall, but until there is new job creation, there will still be downward pressure on real estate.

And personally, we put a bid in on a home this weekend and felt a certain sense of relief when the seller declined our offer. I was worried about being over extended and the seller thought our offer was TOO LOW.

Personally, I think the seller might just be chasing prices downward.

Asking prices in the Baltimore area have now dropped 25% from their peak in May 2006 (see, and year-over-year declines in asking prices are still running higher than 8%, signalling that price declines in Baltimore are far from over.

Those AP writers are morons.

This is just the calm in the storm before the next massive wave of ARM resets. Option ARMS start resetting 2010. Oh yeah...combine that with 10%+ unemployment.....HAHAHAHAHA. Subprime was bad but we only had 5 percent unemployment then.

Check out this url below.

Oh yeah, those banks haven't even put their shadow inventory on the market yet. Wait for that too.


Housing market is a function of employment rate. If employment rate increases, the housing market; and vise- versa.

Looking at the current condition, job cut is all over the place. I'm personally skeptical to see the housing market stabilizes within few months.

When the cabbie started talking about how great the market was, I held off from buying.

When the cabbie started talking about how bad the market was and would get, I bought.

When the cabbie said we'd have $100+ oil forever, I went short.

For the country, no. For Baltimore, a qualified yes for the nicer, established areas.

Further, I am only considering what has been selling, not the asking prices of some delusional sellers. They are irrelevant IMO.

Per the MRIS's June 2009 statistics, prices are still down year-over-year and dollar volumes (the real indicator) are way down for every ZIP code I looked at. Check some of the bank foreclosure lists against the assessor's database and you'll see how some of the August 2008 bottom callers fared.


This is SO the calm before the next storm...we are in the "Eye of the Hurricaine if you will....

What kills me is how irresponsible the mainstream media is in NOT TELLING THE REAL story, and the real facts, which include--

1. 70% of the current REOs are being held back by banks, who are waiting in hopes that taxpayers will have to eat the losses of their BAD BETS.

2. JOBS and unemployment will be bad for years.

3. In many areas, houses are still WAY over-valued, and sellers are stubbornly clinging to 2005 prices.

4. You think Subprime was bad?? There are now HUGE waves of ARM and Prime defaults coming in 2010-2011

5. The commercial real estate bust is just getting started.

6. Boomers are downsizing, and empty nesters have had their 401Ks devistated by Wallstreet's fraud and corruption.

Need MORE?? I always find a great daily round up of truthful articles relating to housing on

Cash for Clunkers and first time home buyer tax credits are not given out during bottoms. You get nothing for free. The above are simply marketing programs to avoid the inevitable (crashing markets due to necessary deleveraging) I would venture to say that ANYONE who has purchased a home with the first time home buyer tax credit is likely already losing money on their investment.

A word of advice: Be Patient. The Jones's you are trying to keep up with aren't as well off as you think they are.

Example of thinking:

unemployment is up, therefore housing will fall.

This observation fails to note that the vast majority of people unemployed lack college degrees and didn't make enough money to buy in the first place.

I tried reading the stuff by Mish and and all I can say is "shoddy."

On the one hand you have Yun and the NAR; on the other those bears. Jamie, please point us to some sensible research... and if you cite DoucheBank research, please read it carefully.

I like how you did the chart on median cost per square foot, but I would be interested if you implemented building standards as well net cash flow after tax burdens, which, for the middle-class are quite low compared to the last 100 years. I'd also be interested in seeing what each deviation comes to.

My guess is that financed cost per square foot as a percentage of after-tax income, excluding anyone below 1 deviations with respect to income is more attractive now than ever before.

Candice: Please cite how 70% of banks are holding their REO's? And is that every bank, and what does that say about Balitmore. Countrywide in Vegas has nothing to do with Baltimore.

I am becoming more convinced that housing is bottoming. A long deep drop coupled with inflation was nice, but the articles have degenerated to the same sloppy thinking in '05.

Little Debbie - Good Post. I think it is good to distinguish that the housing market will never be what is in 2005-06 so we need to stop comparing it to that time period. In my opinion once we small 1%+/- year over year changes this will mark the bottom which we will not see until next year if everyone in correct in predicting the bottom. Right now month over month will due until the winter/fall. The supplw is slowing coming in line with historical stadards but I still wonder how much of the suppl is just overpriced homes that have been on the market for over a year with sellers just crossing their fingers

"Little Debbie" remains delusional. There is no sound economic priciple (other than "it's different here") to sustain current prices. I will continue to greatly enjoy the collapse.

Reasons why real estate will continue to decline in value:

1. Moratorium of Foreclosures- Fannie, Freddie, and individual states have required lenders to halt foreclosure proceedings to keep inventory off the market. Once this is over, you will have a huge surge in filings. You are stalling the inevitable.

2. Increased Unemployment- Job losses continue to mount. Even if the losses are less than the prior month, you are still losing jobs and unemployment is still going up. Some say unemployment will peak well over 10% through next year. This will cause even more foreclosures due to loss of income.

3. $8,000 Tax Credit- Once this expires, sales will plummet further. In reality, this is only implemented to stimulate home sales. If taken away, many will lose an incentive to buy and wait for prices to drop further.

4. Seasonal Sales- Sales in the spring and summer are always better than the fall and winter. Sales should be up this time of year. It will be more telling what sales are when the buying season is over.

5. Loss of Lenders & Brokers- More and more lenders are going out of business. Brokers are being phased out by eliminating yield spread premium and capping fees at 1%. This creates higher borrowing costs. Rates will increase in the future since there will be less sources of funding.

I don’t believe we are at the bottom of the housing problem. Yes we may see an increase of sales in the monthly reports however bank’s REO departments aren’t immediately putting their entire inventory on the market, rising unemployment is creating stress for the prime borrower, dropping values are increasing the number of homeowners underwater on their current mortgage amount and the list goes on and on.

Maryland has held up better than most states but MAR’s June report shows an 11.80% decrease in the average price from June of 2008. This number may be more reflective of the mix of homes for sale rather than a drop in prices of 11 plus percent, it does clearly indicates today’s home purchasers are paying less compared to June 2008.

All you need to do is look at your neighbor to get the picture. My Baltimore County condo community had an average sales price between $230,000 and $235,000 at the height of the market. Today I checked the Realtors listing with two unit showing “sale pending” at a listing prices of $185,000 and $175,000. Does anyone reading this think those purchasers paid the list price for those units? That is over a 20% drop in value from the high point in a desirable, safe, excellent schools district neighbor.

Baltimore City has a greater problem with housing, still the age old problem of crime and schools, over 40% of the homes are owned by investors. It becomes easy to walk away from an investment property when cash get squeezed. Take a drive around Baltimore city look at the number of vacant boarded up homes.

Using a song title from a Barenaked Ladies, “If I had a $1,000,000,” I wouldn’t buy Mayor Dixon a fur coat but I would look at the real estate investment opportunity. Even if we aren’t at the bottom of the real estate market the prices are attractive. I suggest that is the reason for the increase in real estate sales numbers nationally.

Let's correct some of the thinking.

1. 10% unemployment is not here; it is 9.4% and the majority of the unemployed were not likely buyers in the first place. Second, are we talking about Balitmore or the US? And how, precisely, do the two correlate? (NB: Among the college educated, unemployment is relatively low in the Baltimore area.)

2. If the economy doesn't recover, do you think that tax credit will disappear by Dec?

3. There's a lot of talk about a shadow inventory. First, where is the evidence without pointing to some ad hoc opinion? Second, what is the evidence for the Balitmore area (and if it is concentrated in somewhere like Pigtown how does that relate to Ruxton)?

I'm growing increasingly disappointed with the "" thinking that fails to consider the complexity of the issue. Sweeping generalizations, equivocal data, and straw-man arguments just don't do it for me. Especially when spoken dogmatically.

I think it will be interesting to see what happens during the fall/winter... that will be one of the best indicators of where things are going in my opinion.

I'm guessing that we are near the bottom, but I'll place my opinion in abeyance until 1) I can find some decent research by "Baltimore bears" and 2) until I see the transactions during this fall/winter.

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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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