Jamie, I think it has to do with Baltimore showing up late to the party of reducing prices. This area has also been on the lists that include "still overpriced" compared to rents or another metric. I'm pretty sure I remember a previous post where you discussed that trend of overpriced homes. People may be finally realizing that their homes are overpriced.

I have an idea what my house is worth, but I'm sure if I would put it on the market I would end up in the category of buyers who say, "that house is a little overpriced"

I think sellers are pricing higher now because of the "buying season" coming up. More people enter the market to buy in the spring and summer months and then demand decreases during the fall and winter. I suppose this has more to do with families wanting to relocate at the end of the school year and move in before the beginning of the next. Prices are still too high for the most part.

I still think prices will have to come down as more foreclosures come on the market from shadow inventory. As long as there are distress sales, it is very difficult for non-distress sellers to get their asking price. Buyers should be more willing to wait for one to come on the market at the lower price and not rush to buy right away like during the bubble. The idea should be to wait and be patient. When the REO comes on the market, be ready to jump and pull the trigger. Then again, maybe some buyers don't really care about price and just want to get a house.

Foreclosures and short sales are driving the housing market. When the unemployment rate starts to drop (which is is beginning to), distressed sales will drop with it.

When this happens, I think home average prices will rise dramatically. Price reductions are a result of being underbid by distressed sales. When that factor goes away, the reductions go away as buyers are forced to then compete in a functioning market.

The fact of the matter is nobody is going to sell their house for $100k less than they bought it for unless they absolutely, positively have to.

You can also feel a rush to beat the tax credit cutoff at the end of this month.

I think this piece needs to be read in conjunction with your blog on normal vs. distress prices. While there is an effect, it was interesting to see the perhaps normal sales are simply different than distress sales and buyers don't or shouldn't expect to see or pay distress prices for a "normal" home. The former piece implies that the distress sales may skew the averages but that when looked at in isolation, normal sales aren't doing as badly as it might appear.

Determining the asking price for cost per square foot both with foreclosures and non-foreclosures would help address that question.

Nobody ever answers this simple question but I will ask it again...if buyers(people, Americans, Investors, Mr and Mrs Jones) couldn't afford home prices before (in the 2004-2008 period)..how exactly will they be able to afford them now? If people can't afford to buy at high prices (which prices still are)..how will prices go up? or stop going down? Who will be buying?

The price increase is most certainly due to the expiring tax credit. We've been searching for a home since January and recently there was a noticeable spike. In some cases the buyers are jumping in and buying homes for more than they're worth. Although this usually happens in desirable places with good schools (e.g. some areas in Columbia), so most likely people are buying for the long run.

However (and this is a good sign) the homes that are severely overpriced (10-20% or even more) are sitting on the market and no one wants them. Actually when I look at the "listing price vs. sale price" graph in most of the areas anywhere from Columbia to Pasadena, the "list price" curve goes up while "sale price" curve goes down. In the best case both are flat with "sale price" slightly lower.

Many sellers are either severely misinformed or plain delusional. They do comparables incorrectly and do not bother to find out what their most likely buyer demographic needs. I'm guessing many sellers just think "heck, we'll set the price at 380K but settle for 360K". the reality is that no one will even see their home and no one will make an offer. (I think Jamie had a good post about this a few months ago).

I disagree with Mat and Pete is correct - the bottom line is that a family with median income cannot afford a median home. When we just started looking, I was inspired by Jamie's post about what 275K would buy and set our price limit accordingly. Sadly, the homes in this price range are either in very bad locations or in need of repairs and additional 30-50K investment. Can't speak for the city, but in suburbs a somewhat decent house will cost at least 300K.

If we use "budget qualification" (see another recent excellent post in this blog) then only DINKs with 6-figure income are really able to afford this. There is no affordable housing for the first-time homebuyers who have families.

After the tax credit expires, many sellers will have no choice but to reduce the price or go off market and wait for better times. In the next year or two the only way for home prices to go up is because of the inflation. But that's another story.

I've been following your buying experience with interest, Jelena. I'm sorry it's not getting any easier.

All you out there dealing with the "why can't I find a home in my price range that doesn't need lots of repairs": I'd like to follow one of you around on a day you go to look at places. This is a housing-market frustration that doesn't get a lot of attention.

Jamie, Regarding "why can't I find a home in my price range that doesn't need lots of repairs", just go on any nice residential block in Baltimore where identical townhouses were usually built in tracks by the same developer. One in great shape is going to maintain its value, even in these times, while the ones in need of repair will go for 30, 40 or even 50% less. There are some nice $250ish houses in the City. I know young families who have recently bought such properties. But one has to compromise at bit on location and size.

Lisa and Jelena's cases really encapsulate my "are high home prices good" argument. Few care for logical reason and even fewer care about aggregated statistics, but compelling personal stories can make points and move people.

If the fraud to prop up housing and the banking industry is a crime, then both of these prospective buyers are victims of that crime. At the very least their stories illustrate the trade-off cost of debatable policy.

Jelena,
Save up as much as you can for a large down payemnt, and hold for the inevitable - interest rates will start rising. Along with the expiration of the tax credit, this will put severe downward pressure on home prices. As Hannibal Lechter said, "Good things come to those who wait".

Josh, just because we mention examples from first hand knowledge doesn't mean we are not paying attention to the stats and trends. That said, although the trends are downward, Jamies recent piece demonstrated that putting forclosures and short sales into the mix may distort what's going on in normal sales. Yes, there were a lot of aggressive and questionable loan practices and speculation, and yes, there should be a better range in prices of available housing at all levels, starter, mid-range move up and higher end. It also was very frustrating during the housing bubble to see that most developers were putting up ever more McMansions to the virtual exclusion of everything else. But even current trends don't mean that we should expect to see high end homes go for $200K short of a major depression and a return to 1960s-1970s prices.

Let's face it -- there's a TON of old money in this area. Take a drive around the Northern Baltimore or Carroll County countryside sometime if you don't believe me.

You think those old horse farming families and plantation aristocrats are going to take the "housing bubble" lying down? No, they will keep their prices high until a white knight comes along to bail them out. Remember, this is **sniff, sniff** "The County," we can't let just ANYONE live here, can we?

I come from York, PA, and the gap between rich and poor is much, much wider here than it was in York. There's much less middle class. Ironic for a region that prides itself on being so "liberal."

Lisa I think you are missing the point. No one is saying that prices are going back to what they were in the '60s or '70s. That is comical. A good indicator of where prices are headed is to take out the bubble period in its entirety. This means you take the median home price of Baltimore in 2000. It was difficult for me to find a source, but I found it at $148,400.Maybe Jamie can verify that figure. Then use a financial calculator with that number as the present value. Use 10 years for N. Plug in 3% for I/Y. Payment you put in 0. Then calculate future value. You come up with $199,437.19.

The bottom line is prices should have continued to free fall to get to where they should be. It didn't happen. Prices have been propped up. When government intervenes, bad things usually happen. You can even call the government setting a "price floor" on housing by propping up the prices. You can say what you want about how great high prices are good, but in reality, it is not. High housing means that consumption for other goods will be sacrificed. Piling on debt has become the American way. As long as people are ignorant enough to pay for high prices, prices will remain high. When people wise up and realize that if they won't pay the higher prices, then prices will have to go down. I know what it must be... I guess everyone thinks they have to buy now before prices go up 20% to 30% a year again or they will miss the boat. Let's all buy NOW before we get cut out the market.

http://www.investopedia.com/calculator/FVCal.aspx

http://www.2002china.net/chinatowns/baltimore/housinghomee.shtml

Here is a better link for sales data for the past decade...

http://market-economics.com/Balt_Metro.pdf

Frank,
Once again you are right on the money (even when you are discussing funny money!)
DR

Frank:

I'm glad to see that you have such a robust understanding of economics.

Where did you study finance?

"Few care for logical reason and even fewer care about aggregated statistics, but compelling personal stories can make points and move people."

Most people from target schools and actual banking (IBD) experience would say the same about a College Park econ grad who's a mortgage broker pontificating about how they know so much whilst making tired and equivocal arguments. Know the limits of your training and depth of study.

It was well papered and well pedigreed Harvard MBA's and MIT physicists who figured out how to turn bundled garbage into AAA MBS's thus nearly bring down the free world as we know it.

Now we have an MIT PhD telling us it's good for the country to have people like Lisa and Jelana need to pay more to keep a roof over their head.

The IBD "target school" crowd has proven their track record.

While it hasn't been updated in a while, the historical data hasn't changed :)

Historical data by month since 2000 for each Maryland county.

http://www.scribd.com/doc/15574970/April-2009-Maryland-Housing-Statistics

Thanks for the post! It's so hard to keep up with the real estate market in general, but every city seems to be different. I'm coming from Las Vegas to Baltimore, and I think I have the situation figured out.

Frank,
You are delightfully astute. Thank you. "When government intervenes, bad things usually happen." That is so true. I appreciate the common sense you have brought to the discussion.