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December 11, 2009

The Baltimore-area housing market, Nov. '09 edition

My story today about November home sales in the Baltimore metro area includes what local real estate investor Alan Chantker calls the $64-billion-dollar question: What happens when the home buyer tax credit expires?

Assuming it's not extended again -- and the credit's chief promoter in the Senate swears this is it -- then it will stop being a factor in new contracts after April 30, the deadline to sign.

Then what?

Economist Dean Baker, who warned of the bubble years before it popped, says he expects the market will take another hit soon. He actually expects it before the credit expires, because he thinks the lure of the original $8,000 credit convinced people who would have bought next year to buy this year, thus decreasing next year's pool of potential buyers.

John Burns Real Estate Consulting, which advises the home building and real estate industries (some of you know the firm for its "housing cycle barometer"), is more optimistic. Steve Dutra, vice president of information there, expects modest sales improvement and flat to small decreases in prices next year in the area. (Still, Baltimore does top the barometer list of "areas of affordability concern," calculated by comparing metro areas to their historical norms.)

Kenneth Wenhold, Mid-Atlantic regional director of Metrostudy, another firm that advises home builders, has his own analysis of our area:

He wrote in a report about resales -- the part of the market tracked by Metropolitan Regional Information Systems -- that the Baltimore metro area is finally "beginning to heal." There are still too many homes for sale to allow prices to rise, but the number is falling and contracts are rising, he noted:

"Originally I wrote that we did not expect to see Baltimore tighten up as quickly as Maryland, [but] the last two months of data shows that it has the potential to tighten up just as rapidly, and it seems to be making up for lost time. At this rate, we could see Baltimore, Anne Arundel and Harford Counties at equilibrium by the beginning of spring if this momentum is maintained."

He expects some post-credit "hangover" but thinks it will be better coming in the summer than the usually slow winter.

What's your prediction for the housing market when the tax credit ends?

Do you think, on balance, the incentive will have been helpful, harmful or neutral?

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (7)
Categories: First-time buyer tax credit, Housing stats


Tax credit has already been extended and expanded (Obama signed it into law in early Nov).

Er, KMH, you did see the part of this post that said the new expiration date is after ~April 30~ for contracts signed, right? I'd be doing a pretty poor job as a housing reporter if I wasn't aware of that. Honestly, I've lost track of how many posts I've written about the extension.

Hi Jamie, This has to be one of the oddest markets. Basically there is little inventory. That is going to be a big issue moving forward. Those whom have to sell are, but the rest, well they'll wait it out. The problem is those whom have had to sell are begin to dry up. Not to mention Foreclosures here are drying up, with shadow inventory never coming up on the market. Buyers are waiting it out also, as it has become a bit of chess game. I'm starting to believe that those who were seriously intending to buy a home have, and those whom haven't are those who are more entrenched in the belief things must fall further for them to buy, irrespective of the tax credit.
There are some real systemic issues moving forward, and it will be due to extremely low inventory numbers which are beginning to freeze the market.

Hi, Anthony -- thanks for your post. Perhaps New York, your market, is different from Baltimore? The Baltimore metro area's inventory is still above normal, though naturally I don't have a crystal ball to tell me what it will do in the near future.

I know there are a lot of underwater borrowers who would like to sell but can't, so that's one bottleneck.

Jamie-All of this "economic projection" is good for conversation, but the individual needs of folks out there has to be the focus for us professionals out there. Having an understanding of what an individual or their family's needs are, are what Realtors can do to help the "market." I still see too many overpriced listings, listings listed as "potential short sale" and the Realtor doesn't even know what constitutes a short sale and houses listed in competitive areas that aren't even cleaned up enough to host a family get together much less be staged to sell. And finally the houses of folks who "want to" sell. Currently, in most areas, this is a "need to" sell market. If we can keep the "want to's" on the sidelines for a while, we (Real Estate Professionals) can help make it a more stable housing market for everyone.

Even if Anthony is here just to do some guerilla marketing, maybe it is worthwile to point out that the terminology he used is not so alive any more. "Systemic issues" and "odd markets" belong to the realtor jargon of eraly 00s. It's 2010. I keenly await more fanciful expressions ;)

This is quite an odd market. I look at the simple history of my own house and can't make heads or tails where this will all end up. My house was sold in 1920 for 5500 dollars, nearly eighty years later it is sold for 110,000 dollars, then in just eight years neighboring houses were selling for 350,000 dollars. When I bought my house interest rates were at 8%, when they were selling at 350,000 interest rates were where they are today. However if all of the reports are correct, nearly a third of the mortgages handed out were fake. When I received my mortgage there was no such thing as an 80/20 mortgage. How can you have equity in something without putting money down? I think the government is still subsidizing the interest rate. Housing in my neighborhood have dropped to the lower 300's, but once that interest rate goes up I have no idea what they will sell for.
Plus some sellers out there are being ridiculous. Currently my wife and I like a house in Roland Park. The owner purchased the house for 345,000 dollars in 2005, nothing has been done to the house yet they are asking 455,000 dollars. We really liked a house in Towson that was purchased in 2004 for 350,000 dollars. The owners did a beautiful job upgrading the house and putting on an addition. They were asking 600,000 dollars. I doubt they spent 250,000 dollars in upgrades, but that is what they were trying to make off of their home. I don't think people can expect to get 100 percent return on an upgrade, but they are trying and then some.
The disparity in city and county property taxes also comes into play. City property taxes on the 450,000 dollar home are 10,200 dollars a year, in Baltimore County the taxes would be around 5800 dollars. I am fortunate to be able to look at houses in that price range, but by no means do I think that makes me rich.
My wife and I are expecting a third child next year. Our three bedroom rowhouse has already gotten a lot smaller, and I can only imagine how crowded it will be after the kids' new Christmas presents. But I am going to sit tight. I still think there is a correction coming, and even though my house drops in value, the gap between what we have and what we want drops also. Thanks for the reporting job you do Miss Jamie. I have a feeling I will have to eventually change my moniker to Mr. Baltimore County.

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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.
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