Here's another analysis to make home sellers groan and first-time buyers cheer: financial analysis firm Fiserv expects prices will fall just over 11 percent -- here and nationally -- in the 12 months ending next June.

If its forecast for an 11.4 percent decline in median home prices in the Baltimore metro area proves accurate, local homeowners are facing a slightly bigger one-year decline than they've already weathered. Prices fell just under 11 percent from June '08 to June '09.

So what about the housing-market bottom we've all heard so much about for, oh, the last few years? Fiserv sees Baltimore-area prices stabilizing after the middle of 2010. In June 2011, it forecasts, prices will be up almost 1 percent from a year earlier.

For the U.S. as a whole, the company expects a price bump-up of 3.6 percent.

There are a lot of housing-market question marks right now that make forecasting tricky.

Continue reading "Analysis: Expect 11 percent drop in home prices " »

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He said in a press release that he thinks this wave is creeping north:

As long as year-over-year totals continue to increase in Maryland, we should see that market continue to improve, first in the D.C. suburbs, and then in the Baltimore region. Assuming things continue as projected, the spring of 2010 should see price stability in Maryland and another wave of buyers entering the market.

More specifically, he said: "While we do not expect the Baltimore region to improve as quickly as the Maryland side of Washington, D.C., it should continue to slowly tighten during the next 12 months, perhaps with the core counties reaching equilibrium in mid- to late 2010.”

Equilibrium in a housing-market sense means buyers and sellers in basically equal numbers.

Do you agree with Wenhold's forecast?

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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.

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You've probably heard people talking about V-shaped housing-market recoveries -- sharply down, sharply up -- and U-shaped turnarounds (down, flat, up).

But letters of the alphabet as economic metaphors are so 2008. The hot new thing: kitchen implements.

David Stiff, chief economist at Fiserv, tells Time's Curious Capitalist blog that he's expecting a recovery will look like a frying pan. Here's what he means:

Once the glut of low-priced foreclosures thins out and buyers are back to choosing between homes owned by more typical sellers, he anticipates a short increase in price, followed by more-or-less flat values. The Curious Capitalist says, "Following the housing bust in the northeastern U.S. in the 1980s, home prices were fairly flat for four to five years. It takes a while for folks to regain their confidence to go out and buy a house—especially a more-expensive one."

If you're scratching your head over the comparison to a frying pan, picture a two-dimensional drawing: down, then flat, then up a bit, then -- along the handle -- flat once again. (Actually, you don't need to imagine it. You can see Stiff's doodle here.)

This prompted a tongue-in-cheek response from a reader who wondered if the frying-pan handle could "possibly have an upward tilt, or perhaps an ergonomically designed grip," and warned that if "it's a Pyrex frying pan, you could slip right off that handle into the fire."

Ouch. Don't get folks started on the subject of "green shoots," either.

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"Prices have more to fall, given the high level of foreclosure, but sales and construction, I think, are at bottom," Zandi said. "And part of it is related to much-improved affordability."

Zandi's not expecting much in the way of sales gains, though. Just the promise of some stability after years of retrenching.

"As long as the job market is sinking, it's hard to imagine home sales taking off to any considerable degree," he said.

 

A smaller drop for our area, then, but Zandi expects it will be over sooner for the U.S.: the third quarter of next year, compared with a first-quarter 2011 bottom in prices for the Baltimore metro area.

Here's what he had to say about our market and its price outlook:

"It's certainly been hit hard, but it's held up much better than I thought it would through this period. It may be that I've been overly pessimistic. The region's economy has actually held up reasonably well given the severity of the national downtown. That may go to the preponderance of health-care activities in the region, which is the one industry nationwide which has continued to do reasonably well.

"It may also suggest, though, that Baltimore house prices don't start rising to any significant degree for longer. Prices didn't come down as much as I thought, so that means affordability hasn't improved as much as I would have hoped for. ... Prices need to fall a bit more to sufficiently restore affordability based on incomes and effective rents in the Baltimore metro area."

What's the magic number? He thinks an affordable median price for the metro area is around $210,000 to $220,000. Right now, as measured by MRIS, it's $250,000.

Thoughts?

Posted by Jamie Smith Hopkins at 1:14 PM | Permalink | Comments (6)
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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.

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As Struever Bros. Eccles & Rouse grapples with millions in debt and related woes, the state is worried the Baltimore developer won't be able to handle its lead role in the long-discussed State Center redevelopment, Annie Linskey reports today.

From the story:

Maryland officials still hope to ask the Board of Public Works to approve in June a master development agreement that would allow the project to break ground by late 2010, said Michael A. Gaines Sr., assistant secretary for real estate in the Department of General Services. But Howard Freedlander, an aide to State Treasurer Nancy Kopp, said "we've been told that the state is examining the structure of the development team in light of what everybody knows" about Struever Bros.

Meanwhile, the city is letting the developer "walk away from $700,000 in loans" on another project. From the same story:

On Wednesday, the city's Board of Estimates renegotiated a loan it granted Struever 25 years ago to redevelop Church Square Shopping Center in East Baltimore.

The travails of the housing market and economy at large make this a difficult time for most developers. There's been a lot of crystal-ball pronouncements from economists lately about when we can expect things to improve.

Mark Zandi, chief economist of Moody's Economy.com, offered a forecast at a recent National Association of Home Builders conference. He said sales have probably bottomed and prices will likely stop falling at the end of the year, with foreclosures peaking at the beginning of next year, according to the NAHB Nation's Building News. (This is nationally speaking, of course. Experiences can vary at a local level.)

Also:

From peak to trough, there will be a 36% decline in prices, and it will be more than a decade before home prices return to the highs recorded during the recent housing boom, he added.

Posted by Jamie Smith Hopkins at 10:40 AM | Permalink | Comments (0)
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One more volley in the debate about home prices: IHS Global Insight suggests in a new report that housing in the Baltimore metro area is pretty close to fairly valued.

The economic forecasting firm says its number-crunching, which takes historical values into account, puts prices in the Baltimore metro area at 2.9 percent overvalued at the end of last year. That's within IHS Global Insight's margin of "historically normal."

By contrast, the metro area was 11 percent overvalued last summer and 26 percent overvalued at the peak of the housing frenzy in 2005, the company says.

According to the report, out this week:

Extreme overvaluation is now essentially nonexistent. Only Atlantic City, New Jersey met our definition for extreme overvaluation during the fourth quarter, a sharp contrast to 2005 when 52 metro areas were judged to be extremely overvalued. For the country as a whole, the housing market is slightly undervalued. When the 330 metro areas are weighted by market value, the nation is 8.4% undervalued. When weighted by housing units, the nation is 10.2% undervalued.

What numbers did the company crunch to come up with this evaluation, you ask? OK, fine, maybe you're not asking, but here's the answer anyway:

Our approach to determining statistically normal house values considers not only house prices and interest rates, but household incomes, population densities, and any historical premiums or discounts metropolitan areas have exhibited over time.

Looks like you have to sign up on the company's site to get the report, but you can see the press release here.

I'm getting the sense from agents and house-hunters that price range matters when it comes to sorting out whether values (or at least asking prices) are fair. One reader commented on yesterday's post about home prices vs. incomes: "We still feel priced out of the market and have been looking to buy a home in the $320K range."

Are there price ranges where the homes seem undervalued? Or where many of the properties on the market seem overpriced? And what -- as Goldilocks would say -- seems just right?

Posted by Jamie Smith Hopkins at 9:31 AM | Permalink | Comments (2)
Categories: Housing forecasts