Labor Day Cookout talk - Price declines accelerating

Well folks as we get ready for the last weekend of summer it gives us an opportunity to discuss with friends and family the favorite topic of those who bought in 2004-2007 housing!!!! See those stupid fools who bought are stuck. They are probably going to be stuck in the house they are in for at least 10 years. I think that we are likely half way there in regards to a bottom in the Baltimore region.

Take a look at the recent weeks ASKING PRICES and sellers are starting to figure out that if you want to sell you gotta be 20% below the dopes who bought in 2006 and are trying to get their money back.



Here are the peak ASKING PRICES in 2006. (hat tip housingtracker.net for the mls numbers for stats in both pictures.)



As you can see we are now 20% off peak.

20%....think about that. Being a bubblesitter, you just saved an equivalent of a downpayment.

The need to show up with your own money vs. just the banks money causes a huge shift in mentality. Now folks care about price and with rising costs of gas, food, and other consumer goods that I did not consider before, we probably have another shoe to drop.

Here is my prediction of where we need to get before prices stabilize:



This will give us a drop of around 40%. If you factor in inflation drops are over 50%, but personally I think deflation in housing is a long term trend at least till 2014 in this state because the costs of everything else are going up highter than the national average.

Now I expect the drop to speed up through end the year. We have 2 major events coming up. First, buyers disappear once football season starts and don't come back till baseball season starts. Second, on October 1st we way bye bye to down payment assistance.

On Monday I had an opportunity to take a look at the MLS database and looking at a sampling of sales in Federal Hill, Towson, Perry Hall, and Ellicott City an interesting trend appears. They days of 10%-20% rebates to the buyer after closing are the rule not the exception.

This I think is partially a Realtor tactic to keep prices appear higher and keep commissions up in a down market. The appraisers are not seeing this because the so called comps they can currently use are the high priced 100% frauds that do not reflect reality.

Here's the scam: The Realtor twists the sellers into settling at x price with a 20k kickback to the buyer. The Realtor says that if you want to sell this is a way to hit your number and the buyer can take the house. They spin it as a win/win for everyone even though it's akeen to robbing the bank(and should be illegal as the IRS successfully argued). The selling agent is also usually the buyers agent on the move up house and explans that they will get the money back on the settlement of the move up house they are trying to buy.

October 1st this round of musical chairs should end and help bring down prices even more.



With the downpayment assistance going away, the tactics will have to change. This will be painful to the current knife catchers but in the end will cause transparency and remove most of the control realtors have been using around here to engineer a slower drop. This will cause the serious sellers to price right and forget about saving face. The skewed hidden numbers to come out in the open of those who bought before 2004 will be able to undercut by another 10-20%.

The shift in mindset that housing is a way to riches is over. Easy financing is gone. Cash is becoming king. Sellers need to keep this in mind that you have no power especially if the banks start to dump the junk to clean the books up.

Right now the banks are holding the junk and only putting the cream on the MLS. This is not confined to the lower income city neighborhoods. We had a lot of subprime buyers in the inner ring burbs like Glen Burnie, Halethorpe, Rosedale, Parkville, and Woodlawn. (Although Owings Mills appears to be our current leader in the county for foreclosures.)

Subprime is a problem in the Federal Hill, Canton, and Fells Point as well, but they are actually more an ALT-A problem due to speculation.

We also had a lot of loans with supposed income of getting over market rent for a tiny bedroom. See 850 bucks a month for a 150 sq ft is not happening. We had a lot of loans written with the idea that you could get TWO roommates to help you out.

The problem however is that after a few months of this the roommate paying rent starts to wonder what the hell are they doing and start looking for a cheaper place. They don't own the property so what do they care. Again being 22 and having 2 roomates is fun. Having to do it at 30 because you overbought....yuk.


This will blow the comps away as appraisers are forced to use these new lower comps.

Have a happy and safe labor day everyone.

WaMu offering 5% 1 year CD's......hmmmmm

Washington Mutual the king of suprime and ALT-A loans is currently offering a 5% 1 YEAR CD for those of you looking for a place to stash your cash in this ever changing world without credit. If your a prospective home buyer in 2 years after we have reset to 2002 prices and have the cash to put down on a house that the stupid sellers chasing the market down do not (and rightfully will not) ever get for a bloated box of made of sticks this might be something to investigate.

One note is that Indy Mac was offering a similar offer back in June, a couple weeks before the FDIC did a friday closing and reopening as INDYMAC Federal Bank. Deposits are insured up to $100,0000. Again....just saying....

Realtor Ethics - Confessions of a Realtor

Confession of a Realtor from Patrick.net,

My general approach to life is to observe as objectively as possible then to make adjustments accordingly. After all, as we say in Real Estate, motivated people face reality and take action. That's me. I'm motivated. Ms. Motivation.

I started working as a loan officer three and a half years ago and then transitioned into real estate sales. I really loved this business from the beginning. I love the variety of tasks, learning the laws, the lender guidelines, working with people. So I furthered my education and joined 'the board'. Now I am a full-fledged Realtor. Joy.

Being a loan officer for a while, you figure things out as patterns emerge. You've got a broker shop with an owner who employs their friends and family. You've got a revolving door of loan officers who come and go. And the only people who seem to make the money, consistently, are the owners and the friends and family. Yes, there is a lot wrong with this picture, but I won't go into that here.

"Well", I thought, as one brilliant thought followed another, "I'll transition into real estate sales. It's gotta be better there. The people present much better, That's for sure."

Since I'm relatively intelligent -- well, I guess this depends on who you talk to -- I pick up on things a lot faster now than I used to. You know, the duplicity, the illusion, right? Took me a while to see it in the mortgage world. The view of the world that "we think like this. If you are to be one of us, you will think like us." You get it, right? Collective CYA (Cover Your Ass). Let's start our new real estate careers in fear, shall we?

When you "join the board", which is a requirement to gain access to the MLS (Multiple Listing Service), you must attend "Ethics Training". If you don't, you will be denied access to the MLS, even though you paid your fees. OK, well, ethics training. Great!! Let's have some. Bring it on. I love ethics. I read about it and try to live it.

The trouble is that in all the books I've read and all the seminars I've been to, the National Association of Realtors (NAR) seems to define "Ethics Training" to include a few add-ons. Call me naive, but what do you expect? I thought I'd learn all about how to treat clients, to be honest, even if it's not what others want to hear, above all else, to put clients' interests first. And we did briefly touch on this. Not ethics training -- "nethics" training.

NETHICS (noun): Ethics according to the National Association of Realtors.

First and foremost on this agenda is do not ever, ever, never under any circumstances give the slightest smidgeon of a passing thought that brokers fix commission prices. The first and only video we viewed trained us specifically on the "commission objection", to basically say whatever you want, other than "this is a typical charge for the industry" and certainly NOT "this is what everyone charges". This message from NAR took up the first hour of a four-hour training class on ethics. I was sitting there just shocked.

Secondly, we never ever under any circumstances say anything negative about other Realtors. What? If I have personal knowledge that some agent is a real snake, I can't warn people? That's right folks. Any and all such comments must be sent to the "Ethics Committee" and dealt with behind closed doors. Hmmm. What about the public's best interest? This second message took up another hour of this four-hour seminar.

So there you go. I'm a full-fledged, ethical Realtor. We don't fix prices and we don't talk bad about each other. Would you like to see some property?

It's not that I think these are bad ideas. But why are these two things the very most important "ethical" topics in real estate? Am I missing something here or is something really missing? This just doesn't make sense, unless... hmmm...

NO. THAT couldn't be. Its just not possible that the most important thing to NAR leadership is staying in control and staying in power and covering their asses, even though they are not competent to run the organization. It just COULDN'T be smoke and mirrors. It COULDN'T be that their time has passed, that they need to evolve and adjust to the vastly different new paradigm in which the world now operates. Could someone please tell NAR that the iron-fist approach is just passe?

With so much emphasis and focus placed on CYA, is it any wonder NAR has missed so many opportunities to be a voice for transparency and honesty? That's not even on the radar.

As for me, I continue my pursuit of a more ethical profession. I'm pondering law school. (Just kidding.)

July 2008 Home Inventory

I've added on the right sidebar links to inventory, average price, median price, months of supply, and sales. Below is inventory.

Baltimore Housing Bubble July 2008 Housing Inventory

Read this document on Scribd: Baltimore Housing Bubble July 2008 Housing Inventory

July 2008 Home Months of Supply

Below are the trends for months of supply by Maryland County. Tomorrow I'll post on inventory Don't miss my previous three posts on Home Sales, Average price and Median Price.

Baltimore Housing Bubble July 2008 Home Months of Supply

Read this document on Scribd: Baltimore Housing Bubble July 2008 Home Months of Supply

July 2008 Median Home Price

Below are the trends for median price by Maryland County. Over the next two days I'll post on Inventory and Months of Supply. Don't miss my previous two posts on Home Sales and Average price.

Baltimore Housing Bubble July 2008 Home Median Price

Read this document on Scribd: Baltimore Housing Bubble July 2008 Home Median Price

July 2008 Average Price

Below are the trends for average price by Maryland County. Over the next three days I'll post on Median Price, Inventory and Months of Supply. Don't miss my post from yesterday on Home Sales.

Baltimore Housing Bubble July 2008 Home Average Price

Read this document on Scribd: Baltimore Housing Bubble July 2008 Home Average Price

July Home Sales

I spent the weekend working on a process to report home sales, median price, average price, inventory, and months of supply. I will be posting one report each day over the next 4 days, so be sure to check back.

Todays report is home sales. Can you see the trend?

Baltimore Housing Bubble July 2008 Housing Sales - Upload a Document to Scribd

Read this document on Scribd: Baltimore Housing Bubble July 2008 Housing Sales

FDIC Limits

With all the bank failures, and one's potentially coming, I think its important that readers understand their level of protection with FDIC. I had dinner the other day with the president of a local bank and we discussed, among other things, FDIC limits. He expressed to me that by layering names and payable on death (POD) accounts, one could increase their protection. So with careful planning, you can maximize your protection. The following is an example of how a family of three can enjoy insured accounts totaling $1 million.

Understanding layering names and POD accounts is critical to maximizing your potential protection, but their are also tax and estate consequences from these structures which would vary by individual situation which should also be considered. I would advise speaking with an estate accountant and/or tax adviser.

Additional to the above deposit accounts, FDIC covers $250,000 on IRA accounts.

Foreclosure Crisis & Rental Advice

Excellent article over at WaPo about the foreclosure crisis catching renters off guard. A lot of good information in the article such as 1 in 5 foreclosed on homes is not owner occupied. One specific piece of relevant information to Baltimore is,

Starting Monday[8/11/08], tenants in [Baltimore] foreclosed-on homes must get at least 14 days notice -- by certified mail and first-class mail -- before eviction.

A week before the eviction, the sheriff's office must post a written notice on the door. "It's a good first step, but two weeks is not enough time to find a new place to live when the affordable rental market is tight," said Sally Scott, co-chairman of the Baltimore Homeownership Preservation Coalition.

That's as good as it gets for tenants in Maryland, said Kathleen S. Skullney, a foreclosure lawyer at the Legal Aid Bureau in Baltimore. In limited circumstances, a lease may survive a foreclosure, but otherwise, the new owners are not obligated to contact renters in advance. Many limit their efforts to dealing with borrowers and courts.

Once the foreclosure is approved and eviction is legally allowed, the renter may have to leave on the spot.

"The renter has no defense at that point," Skullney said. "If there ever was an overlooked and uncontemplated consequence of the foreclosure crisis, this is it."

In other words Renters beware! Being a renter myself and on the market for a new rental (until last week) I am very cautious about the financial situation of any potential landlord. Renters I would recommend doing your due diligence and pulling all the mortgage information you can gather.

First start with finding out who is the owner of the place which you may not know if the rental is represented by a Realtor. I start with the Maryland Real Property Search. After I have found the owners name I head over to Maryland Land Record (requires a free registration) and pull all the mortgage history on the owner. A few key things I look for are equity withdraws, purchase money, how much equity is in the Rental (difference between purchase prices and "any new mortgage" in the Deed), Adjustable Rate riders, etc... If the Landlord has little or no equity in the project then you may need to be wary. I personally use all available information and try to compute the landlords monthly carrying cost and compare it to their potential rental income.

As an example, I just signed a new rental for $1400 in a prestigious neighborhood in Northern Baltimore County. The home was built in 2006, has about 1700 sq.ft., granite counter tops, recessed lighting, hardwood floors, and the neighborhood is being marketed as "luxury living". These homes are for sale at $350,000 which equals a payment of $2,155 with no down-payment at 6.25%. The annual tax is a little over $3000 or about $250 per month (found this from the Maryland Real Property search previously mentioned). The HOA is $250 per month. To own this home would cost $2,655 per month (2,155+250+250) excluding maintenance, but I'm renting it for only $1400 or a 47% discount renting vs owning. By renting I don't have exposure to price declines plus I don't have to worry about paying for an exterminator, maintenance, mowing the lawn, buying a new water heater when it breaks, etc. But I didn't just want a good deal (read 47% discount), I wanted a "stable" landlord who wasn't going to fold overnight. So you may ask how can the landlord afford a $1,255 per month loss (2655-1400), well they can because it is in the equity and not the cashflow. In other words, the landlord had a huge downpayment on the rental and their monthly carrying cost is literally equal to the rent price excluding vacancies, maintenance, moving the lawn, management, advertising, etc. So I get to live off somebody else's eroding equity while I can continue to save. Knowing these bits of information saved me from renting one of the other 15 rentals I've look at over the past two months. By looking at the financial information, I could see that at least 10 of these homes will be in foreclosure in the next year or so. I even saw a rental from Katherine Connelly, the executive director of the Maryland Real Estate Commission (the group which issues Realtors licenses). She must have been drinking the kool aid for unstated reasons; you can figure out if you search the records. The rental market is flush with good deals and remember, you can always negotiate the rental price lower (I did). Part of the reason I created this blog was to help prudent people protect themselves from current crisis and even bigger crisis coming soon. Helping renter avoid desperate landlords would fit this mission as would helping first time buyers avoid buying at inflated prices.

Going back to the WaPo article, Tanta co-author at Calculated Risk has a good commentary on the article called, "Why We Have a Foreclosure Crisis in the First Place". I would recommend going over there to read the post.

Impact of the Housing Crash on Family Wealth

Interesting study from the Center for Economic Policy and Research, The Impact of the Housing Crash on Family Wealth , published July 2008.

Families in the 18-34 age group will have 67.6% less in net worth in 2009 than in 2004. The median family in the 35-44 age will have 56.2% less in 2009 than in 2004. This corresponds to a decline of $41,000 in median wealth.

The typical family in the age group from 45 to 54 will have 34.6% less in 2009 than did families in the same age group in 2004. The median family in the 55-64 age cohort will have $121,000 less wealth than their counterparts in this age group in 2004, a decline of 43.9%.

The projections show that the crash of the housing bubble is likely to eliminate most, if not all, of the gains that families had made in accumulating wealth over the last two decades.

Homes are the major financial asset held by the bulk of the population. It was inevitable that the sharp downturn in the housing market that we have seen over the last two years would have a substantial impact on the wealth of most families. As these projections should demonstrate, home ownership everywhere is not always an effective way to accumulate wealth.

Their are some very nice graphs in the study.

Homeowners in Denial

Interesting survey done by Zillow showing most homeowners are in denial about decline home values as it relates to their home.

"Not My House!" Sentiment Showcases Wide Homeowner Perception-Reality Gap Nearly two out of three (62%) homeowners think their home value has increased or remained the same in the past year. Unfortunately, the reality of the market is not quite as bright; in fact, it's getting worse. Seventy-seven percent of U.S. homes lost value in the past 12 months, according to preliminary analysis of Zillow's Q2 Real Estate Market Reports, due to be released August 12, while only 19 percent increased and 5 percent remained the same. Whether it's apathy, confusion or just plain denial, homeowners seem to believe the housing crisis affects every other home but "not my house," underscoring a wide gap between homeowners' inflated perception of their home values and the gloomy market reality.

"Our survey reveals a wide gap between the perception homeowners have about their own home's value and the realities of a market in which three-quarters of homes declined in value in the past year. We attribute this gap to a combination of inattention and a fair bit of denial that causes people to believe their home is insulated from the woes of the market that affect others, but not them," said Dr. Stan Humphries, Zillow vice president of data and analytics. "This sentiment is also carried through in homeowner confidence for the short-term as more people expect their home to perform better in the next six months than the market and recent past. Although many homeowners may believe the worst is over, we think this level of optimism is out of sync with actual market performance."

More statistics in the survey so it might be worthwhile to check it out.

Below are a few graphs I found on Zillow (click on picture to make larger).



Two other PDF files are here and here showing perception vs reality. I really find it interesting that Americans are living in denial; I wonder how long thats been going on....

Downward Price Trend continues......

It's been a while since we have shown the downward trend in prices. Now we are not California folks but it's going down. Part of the reason for this is that the banks have slowed the rate they have been kicking people out of the house. If you saw in the previous post about the day care lady, she's been in the place for close to a year without paying. (Some racket these people are running) The banks are overwhelmed and simply have not brought them back on the market. They are coming, just that they are going to be sitting empty for a year or longer before they get on the MLS.

With the vulture investors starting to come into the market now and buy up these distressed mortgage books from the banks, we should start to see a speed up this fall and into next spring. They have bought in at 20 cents on the dollar so they can be a lot more flexible in terms then the banks in working things out.

They are not however going to give them away to the current home owner. Because of the state of the market, the new owner of the lien is not going to keep an owner that never could afford the place to begin with. They are going to have to hold these loans till the end of it's term so if the vulture fund knows that the owner is not going to be worth keeping, they are just going to foreclose to try and get at least some profit out of the deal.


Back in April I showed you the numbers from peak, let's see how we are now:



Just to give you an idea of how crazy the sellers are downtown look at these scary MLS numbers on from Realty Times.




I like the description of our honest realtor here telling it like it is. Look above at the sellers asking price vs what actually settles. Pretty much shows you that almost all the stuff for sale is due to the bubble fraud.

This report clearly illustrates the general apathy in the market right now. The percentage of homes under contract versus active homes has basically stayed the same, but that's because the number of active listings has dropped due to sellers deciding to wait or rent out their listings. The only area bucking the trend somewhat is the Federal Hill area and the numbers there are being bolstered by The Ritz and Pinnacle projects. Without those, the numbers here would be similar to Canton. The 21231 zip code, however, continues to struggle with only 8.2% of the available homes under contract. That number has been constant all year long. Prices have been declining in all areas with Federal Hill still staying on par due to the projects mentioned above.

Seems correct, the new high end stuff on the water is skewing the numbers in Fed Hill.

Generally speaking, we have a real estate market undergoing stresses that are without precedent. The old saying, what goes up must come down, definitely applies to what we are experiencing right now. However, it's not just a simple price correction taking place, it's a whole economic structure teetering on the edge. Our government has taken some drastic measures to breath life back into the economy and it may have some impact, but it's almost like putting a bandaid on a bullet wound.

A lot of people are in survival mode and have turned a blind eye to any major expenditures. Some buyers are taking advantage though as witnessed by some upper end homes still selling. Those sales have kept the average numbers looking reasonable, but median sales prices in many areas reflect that the vast majority of buyers are opting for housing that truly fits their budgets.

Um....yeah you mean people are not speculating because they have to put money down? They have to actually document income? So basically the real buyers are back in control like it's supposed to be?

For buyers who meet the criteria, your choices are endless right now. Getting sellers to play along isn't always practical or likely in all cases, but there are sellers who aren't upside down in their homes that will negotiate and make it work. Many buyers feel they are just going to wait and see what happens and you can't blame them, but buying decisions should be based on what your short and long term goals are and where your personal finances sit right now. If you have the means, you could find the perfect home at the right price. A home is more than just an investment it's where you live and raise your kids or a community you desire.

The issue is that the people buying in these area's downtown are NOT going to raise kids in the city. As soon as they have a kid it is off to the burbs. The city tax structure and lack of decent schools and services shows we have a long way to go in downtown bubble areas.


Yep....still going down. Even today the head of Freddie Mac said we are only halfway through this. Folks we are not at the end of this credit crunch. It's going to accelerate next year before going to down slowly month by month till we reach a bottom around late 2011. At that point it will likely scrape bottom for years. Around 2015 we may start to see a slow appreciation again. This is of course if everyone get's raises and real incomes go up. If we muddle thru here economically for a decade, a real possibility, real prices will go down more and more.

Fannie Mae Raises Fees.....making sellers and builders squirm more

Well all you greedy speculators and flippers have totally f'd it up for yourselves and everyone else.

Here's another reason why prices will not come back for over a decade. Today, in what's obviously a way to raise capital and a way to finance the foreclosures of all you wannabe's who are going to lose your home when your ARM resets. Fannie Mae will up it's interest rate points charge on loans done to distressed markets effective Oct 1st. This in addition to the charges they added on May after first doing it in December 07. Basically they took the distressed fee and spread it across everyone because congressmen were complaining. That is why rates have been climbing even though the federal reserve has not been raising rates.

Add in essentially the other option; the FHA with it's own fees and well it's not pretty. I think sellers need to understand something....the mortgage market is gone in this country except through the federal government. Yep, the government is now the only lender left. The banks....LOL...they are just the pass thru at this point, if they can't give the loan to the FHA or Fannie and Freddie your not getting one. They have so many foreclosures to deal with that they aren't going to use any of there own money to finance your stainless steel crapshack.


So....basically rates for PRIME buyers in Baltimore are now over 8%. Think about that....a lot of these homes were bought with ARMS that were at 4%. Doubling the interest rate essentially means your never going to get a buyer to stupidly buy your house for more than you paid for it if you bought between 2003-2007. Why? It's not because they don't like the color of the granite you put in, it's because THEY CANNOT AFFORD IT!!!!!

Maryland Home Builders

Maryland home builder Altieri Homes cut employees and developments.

Deep into a nationwide housing slump, which still has a firm grip on Greater Baltimore, the company has been forced to slash its staff from 105 to seven employees, eliminate several communities from its pipeline...

A number of other developers have been forced to lay off sales staff, pull back from new development projects and sell off empty lots to other firms.

"I don't know a builder in this area who hasn't" fallen on hard times, said Kristin Hogle, spokeswoman for the Home Builders Association of Maryland. "They are all in a very uncomfortable position today."

Richland Homes is under pressure too

Glen Burnie real estate developer [Richland Homes] has defaulted on an $8.5 million loan, and while the firm is still intact, its top executive did not rule out the possibility of filing for bankruptcy.

Seems that the senior home building industry isn't immune from the housing correction either.

Sunrise said it would decrease by up to 50 percent its 2008 plan to develop as many as 3,400 living units.

I guess Maryland is not immune to the correction. Is anyone really surprised?

Price Declines

Check out this house which has been on the market for 411 days. It was first listed at $799,000 back in 9/18/07. Below is the pricing since listing:

Price Reduced: 09/18/07 -- $799,900 to $770,000
Price Reduced: 10/09/07 -- $770,000 to $755,000
Price Reduced: 11/16/07 -- $755,000 to $739,900
Price Reduced: 01/13/08 -- $739,900 to $719,900
Price Reduced: 02/14/08 -- $719,900 to $689,900
Price Reduced: 05/03/08 -- $689,900 to $669,900
Price Reduced: 06/07/08 -- $669,900 to $649,900
Price Reduced: 06/30/08 -- $649,900 to $624,900

As you can see this seller must really be hurting, or maybe not. Well the owner purchased for $361,245 back in 2001 and I haven't check the mortgage history to know if they withdrew any equity.

A few discussion questions for you weekend warriors:
What do you think this home should be priced at in TODAY'S market?
What do you think this house will be worth 2 years from now?
What do you think this house will be worth 5 years from now?

While we get the discussion going, I'll check on the mortgage history to see if I can dig up any refi's and/or MEWs.