Baltimore Housing Bubble ‘Not As It Once Was’
The Baltimore Sun reports on the realtor bubble in that city. “Lured by the opportunity to get their piece of escalating housing prices and record sales volumes, newcomers have flooded into the real estate business in the past five years. But as the market loses some sizzle, so do classes to license new real estate professionals, as aspiring and neophyte Realtors alike realize that the money may not be as easy as it once was.”
“Evidence has been mounting for several months that the market is slowing. Sales in the Baltimore metropolitan area fell 19 percent last month, with double-digit declines in the city and all five surrounding counties. Prices, too, are slipping, with the average down more than 6 percent from its July peak.”
“‘I’m actually surprised it’s taken as long as it has for some people to realize they’ve gotten into something more agonizing than they thought it was going to be, for the money you can make,’ said Colin McGowan, director and owner of the Frederick Academy of Real Estate.”
“Statistics from the NAR bear that out. The median income for sales agents dropped to $38,300 in 2004 from $44,100 two years earlier, according to the NAR. The decline is largely attributed to the number of newcomers. As of Jan. 31, Maryland had 29,718 Realtors, up 15 percent from a year earlier and about 75 percent from 2000.”
“Stacey Ingerson left the business in August, just as the local market was passing its peak, after about a nine-month stint as a realtor. She sold two houses. ‘I quickly realized it wasn’t something I was going to do well in,’ she said. ‘I just didn’t think it was a fit for me and my personality. I hate cold calls, and that’s a huge part of it.’”
“Instead, seeing that the market was shifting in favor of buyers, Ingerson started a company that helps sellers fix up their home for sale. ‘I wanted to have my business up when the market did even out a little more,’ Ingerson said. ‘I figured it might not be such a hot market for sellers. They might have to clean the smells out of their refrigerators and uncover the fireplace that they blocked or clean the dining room area that’s full of toys.’”
“Instead, seeing that the market was shifting in favor of buyers, Ingerson started a company that helps sellers fix up their home for sale”
Stacey, At this point you’d do much better getting into foreclosures, BK processing and evictions.
The repo man will be needing lots of help soon.
This is OT, but if you check Craig’s List you’ll see a guy who just told me Atlanta didn’t experience a housing bubble because California investors don’t want to purchase where there are black people. I mean, I have no other way I can explain his response.
I don’t see what that has to do with anything. Washington DC has a huge majority of black people, and it has one of the biggest bubbles around.
I just talked to a friend who is hoping to cash out of the Northern VA market. She wants top dollar and doesn’t like agents asking her what incentives she’ll offer buyers. She says she ain’t givin em’ nuthin and she’s going FSBO ’cause agents aren’t telling her what she wants to hear.
Argh. Mostly she’s testing the market and doesn’t have to sell. But it’s an opportunity lost, if you ask me, to still make a tidy profit.
Excellent point! Thanks for reminding me.
BTW, the Craig’s List schmuck confirmed that this was precisely his angle. Craig’s List is a virtual bonfire right now. Fun!
Yeah, but they’ve kicked the black people outta DC to the surrounding suburbs
Speaking of Atlanta, how has the RE market been there? I am hoping to get promoted at work (finish my MBA in June) and Atlanta is where I hope to end up. I think it is a bit overvalued, but far from West Palm Beach where I currently live. Any info is appreciated.
As for the Craig’s List comment, nothing surprises me anymore.
Look North West. Lake Alatoona is really nice if you like water. There’s some good white whater in the area too. It’s close to the mountains and the houses were pretty affordable there a couple of years ago. I had relatives that lived there and house prices seemed to be really lagging the rest of the nation. My price information is about 3 years out of date, though.
Looks like Baltimore real estate owners will have to settle for single digit gains this year.
The thing about B’more is that there are blocks and blocks of turn-of-the-century brownstones that have been mostly abandoned and falling down since the 1950’s. The craze there has been to renovate and gut them, and turn them into luxury townhouses. It’s been successful in parts of the city, and has spread into others. My question is this: when this bubble bursts and everyone forcloses, what will happen to these “gentrified” areas? I think the ones that are still on the fringe will revert back into undesirable ghetto slums.
Interesting point. It’s remarkable how people forget that, in Baltimore, and large parts of Washington, DC, hundreds, if not thousands, of “beautiful, turn of the century row houses,” were abandoned by their owners, who just packed their cars and left. The things were unsaleable, at any price, for decades. They could not be given away, literally, and were boarded up by local governments and left to rot. Ahh, but we now know that real estate only goes up…..
With help like this, it’s hard to see how the markert could ever recover…
Now that all these reports of slowing markets, reduced prices, increased inventories, etc. are hitting the mainstream media is it safe to discuss the housing bubble with friends, relatives and neighbors? I was talking to friends over the weekend about this and they were more interested in my thoughts on the slowing RE market than in the past. Most people used to think I was a fool for believing RE would take a big hit eventutally, and I began keeping my thoughts to myself.
I’ve been telling my wife (I’m recently married) for the past two years that “now is not the time to buy” - we live in the south bay of Los Angeles (Redondo Beach). She pointed out many of our friends and relatives were buying first homes, bigger homes, and even multiple homes. I argued the market was overheated and we would get killed once things turned around…but the market just kept going, until recently. My beliefs became even stronger once I started following this blog. Now she asks me how long it will be before it’s safe to buy, and I honestly don’t know, but at least people are beginning to open their minds to the concept of a substantial correction in certain overheated markets.
Judicious 1 - My standard advice on this subject is to keep your mouth shut. Historically, those who question the likelihood of ever-rising asset prices are met with ridicule and scorn. This is a classic “bubble” symptom and has been documented in many well-researched financial histories. All you have to do is look back a few years to the 1990’s stock bubble for easy reference. You’ll remember that, ironically, Alan Greenspan himself was flogged rather savagely for his famous comment on “irrational exuberance,” in late 1996.
When the doubter, in this case, you, are proved right by the inevitable fall in prices, you may well find yourself the object of rage from those who begin to realize they have victimized themselves by participating in the mania. To put it inelegantly, he who points out the piece of shit will invariably be accused of putting it there to begin with.
So go ahead and give counsel to those you love, but beware the water cooler at work.
People who own property will get angry at the mere suggestion that there is a bubble. Most people really believe that real estate values can’t decline, always go up, etc. That’s the whole reason they dumped hundreds of thousands of dollars into it… because it’s fundamentally safe… different than stocks… etc.
People in general do not deal well with reality.
The messenger will be shot.
Amen. Keep your mouth shut.
You got that right. My dearest friend, a guy I’d do anything for, and I are at each other’s throats over this. He’s in S Fla. He bought a shitbox townhouse in 2004 for around 155K. They resold last year for as much as 235K. Now some of the delusional in his complex are trying to get even more than that (although nothing is selling). I am after him to sell while he still has a decent profit but he keeps telling me it’s “different” where he is. What gets in the water of these people to cause such delusions? He says he won’t sell for less than a $100K gain. I thought he paid way too much for the place when he bought it at 155! I am absolutely certain that he will end up selling at no profit whatsoever because of greed. Yet he will not listen to any sense. Any story written about how prices and sales are way down there are just more evidence of me “talking my position.” I have no position! It’s really been a strain on our friendship because I want him to make some money and get out of that overpriced piece of crap. Sad.
Friends sometimes have to let friends hurt themselves. You don’t know the future for certain and it’s not like he’s injecting meth or something.
I had a friend ask my advice on a purchase in Nov 2005. I said, probably not a good idea. They agreed. And then purchased it.
Being the parent of a teenager must be a thousand times worse.
You can’t always save someone no matter what Ted Kennedy would have you believe.
TSChick - You might as well try and talk a close friend out of marrying the wrong person. Speak up and you lose your friend. I’d just tell him once and let him takes his lumps. At some point you can buy him a drink and tell him, “I hate to say I told you so, but…”
Judicious 1 - My standard advice on both issue is as follows:
1) On “counseling” anybody on the bubble - don’t do it. In fact, it is probably a good idea to keep your mouth shut. It will only anger people, particularly those already invested. And when prices start to fall, as they inevitably will, those whom you tried to warn away will be doubly pissed off at you, because he who pointed out the piece of shit must have been the guy who put it there to begin with. In other words, it will be YOUR fault that prices are falling. ‘Nuf said.
2) When the monthly cost of owning a house, with a fixed, conventional mortgage, is more or less in line with the cost of renting a comparable property, that is a good sign it’s OK to buy. Prices may go even lower, but they will snap back and you will not get burned. Just be patient.
nope, still not safe… there was a serious brainwashing done over the last four years. i liken it to AIDS, you don’t know/care enough until someone you know goes bankrupt or forecloses. yeah, you know your nephew w/ the wife and kids, and sound financial history? well turns out he dealt w/ shady brokers and habitually used ARMs and IOs. foreclosed at age 32, full blown bankruptcy at 34.
When is it right to buy? My view is “When prices make sense”.
I WILL buy when (Interest, property tax, hoa, insurance, - tax savings) is less than it would cost me to rent a comparable place, assuming I can afford the full PITI cost. Until then, it doesn’t make sense to buy.
Once this happens (either through inflation stealth-dropping prices, or a market adjustment) I will buy. Until then, I won’t.
As for when this will be? Who knows and where-you-at?
judicious1,
I’m going to buy when it’s cheaper or equal to renting and I can still maintain a healthy cash cushion in the bank after the down payment.
I hear the “I’m not going to buy until it is cheaper than renting” line a lot. In most bubble markets it is never going to be cheaper to buy over renting in the short run” Buying a home is a great hedge against future inflation, while if there is deflation you get creamed. Buying a home during normal markets with appreciation equal to or slightly higher than inflation has a break even after closing costs and realtor fees of 4-5 years. In many of today’s bubble markets assuming any appreciation in the next 4-5 years would be a bad assumption.
Nobody can ever tell you with certainty when it will be safe to get back in the market. To do the proper calculations you need to know future appreciation rates, tax consequences, closing costs, your current savings rate, monetize and discount all intangible quality of life issues associated with homeownership, future rent increases, future policy decisions that may effect the desirability of your asset and housing in general, not to mention exogenous shocks like a bird flu pandemic, rampant illegal immigration, a dirty bomb attack in your neighborhood, mass layoffs/plant closings, or a dollar crisis.
Good luck catching the bottom of the market!
You don’t need to catch the bottom of the market IMO: You just have to catch it when it becomes realistic. Once it becomes realistic (self-rent effectively covers nonprinciple costs + tax effects), I’d be happy to buy. It doesn’t even have to be “cheaper to buy than to rent”, just “Not more expensive” as having the inflation hedge is useful.
This is also why I don’t believe that even in the SF bay area bubble that real (inflation adjusted) prices will drop much more than 30%,because when it drops below that, you can start buying properties as rentals again, and the real investors (property as income producer rather than property as speculation) will enter the market in force.
I don’t like to include appreciation (but I do. Even with 3% appreciation, renting beats buying & selling in 10 years in my situation).
Did I say something wrong? “Bottom of the market” did not come out of my mouth, so I’ll say again, when the monthly cost of owning is MORE OR LESS equal to renting, it is ok to buy. No free lunches, N. VA, shelter costs money. And there’s a big difference between primary residence and “investment.”
Or ever.
The rule of thumb in most “buy yourself a house” books is 200x rent. This vastly oversimplifies things, but isn’t a bad starting point.
Myself, I’m willing to pay an extra 10% or so over a comparable rental, not including maintenance costs (which jacks it up another 10% or so). The hedge against inflation, plus some of the other intangibles, are worth that to me.
Decide now (before you get emotionally involved) how much it’s worth to you. And get your wife to decide that with you, it’ll save alot of greif later.
Yeah, much better to say:
Buy when the price to rent is ALMOST what it costs to own, all things considered.
There is a reasonable premium associated with ownership.
I agree you didn’t claim to try and catch the bottom. I think if you are waiting around for prices to decrease enough that rent is equal to or greater than (interest expense + taxes + insurance + maintenance) you could be waiting forever in many markets.
You have to factor in appreciation and the prospect of increasing future rents for homeownership to make economic sense. There will always be some break even point where the cost of buying is equal to renting even if you buy now. I think with housing as overvalued as it is the BEP might be 12-15 years compared to renting all that time.
In order to make a good decision of when to buy a house you need to make some assumptions about future rents, future interest rates, and price appreciation, and then perform some sensitivity analysis around those variables. Of course most americans aren’t doing CBAs to determine if they should/shouldn’t buy a house. If they were I doubt we would have the mania we have today.
There are some ok rent v. buy calculators on the web, I think a good Econ project for a PHD would be to develop a sophisticated economic model for a family’s most important acquisition decision.
Shelton Land Economics 1968 I think it was called The Economics of Buying vs. Renting
what, no more buses from DC into Baltimore?
Good memory John. That was the ‘cash-flow bus’ story. Probably one of my favorites.
Glad it was an inside joke - thought he’d dropped a marble…
My favorite will always be the squirrels.
Will we ever be squirrel-locked again?
sf,
You even remember the ‘land-locked’ story from Flagstaff. They still are!
My friends’ first house was in a roach-infested Baltimore rowhouse. Roaches all over the stove, roaches in the kid’s bathtub rubber ducky. Funny story - when the Rap music got too loud next door my friend would blast a bagpipe version of “Scotland the Brave” at the wall. Worked every time.
I never lived in a row house in Baltimore, but did live there in apartment buildings. The roach problem was something awful, as you could get even professionals to spray, but the roaches would just leave to next door. When the pesticides lost their potency, the roaches would just repopulate.
The funniest story I remember was from a friend and his wife who just had a baby. They didn’t want to use pesticides, so instead they would turn off the lights, wait around 20 minutes, then flip the light back on and start vacuuming them up. Said they could catch dozens this way, until they started to catch on. Smart little beggars.
Atlanta -you have to live between 10 and 2 on thier beltway- otherwise don’t flash you wallet
I used to live in Atlanta. Living right in the middle of the city is incredibly cheap and safe in Atlanta (unlike other major cities - think Georgetown/Dupont Circle, Manhattan, Castro, etc). For under $350K ou can buy a nice renovated/restored home in Virignia Highlands or if you’re a condo type, Midtown for under $300K. And it’s safe. And you can spread out with 2000 SQ.F. or more.
Job growth is anemic in Atlanta, but if you have a good job (>$85K), you can live extremely well in the heart of the city and be safe as well.
I’m new here — recently signed a contract on what I know will be my house for the next 30 years and now am getting ready to sell the place I’ve been living for the last 7 years. This is the first time I’ve seen Baltimore (my hometown) mentioned, so I thought I’d chime in.
To track inventory in my area, I’ve been doing daily searches of homes in my Zip code (kind of an upper-middle class area) in the designated price range of 250-500k. The data has been encouraging for me as an imminent seller — those particular listings have been low and dropping. My question is — is this enough data to be relevant? This is definitely a micro and not macro example, and I’m curious to see if people think some areas of “froth” can remain even as the big bubble goes pop — which it so clearly is about to do.
Some areas will, (and have), get started before others, and at first people will say “but such and such a place (Phoenix, San Diego, etc.) really had a bubble, and we don’t.” But once things really get going enough to be acknowledged in the general news, then I doubt if there will be any “froth” left anywhere.
D.C. Condo Watcher and others in the area,
This was posted in the Wash. Post RE message board today . . .
General - Need advice for negotiations Subscribe
From: chicklet407 2:49 pm
To: ALL (1 of 7)
5552.1
Long story: Without negotiating at the time to protect ourselves from something like this (which we stupidly saw as unlikely), my boyfriend and I signed a contract and put down 5% in November on a condo conversion to be completed in August 2006. They haven’t started work on our unit yet. We visited yesterday and saw that they’ve dropped the prices $15,000! Ideally for that extra $15,000 we would have moved up three floors for a better view (1 floor=$5,000). We don’t want our money back, we’re just interested to know if we have any chance of success if we ask for a free upgrade to hardwood flooring (they quoted us $7500 for that). Ideally, we’d ask to move up the extra floors, but we figure that’s very unlikely.
We’re going to try to get the guts to go to the sales manager and see if there’s anything they can do for us (we’ll prob. ask for the floors), as someone wrote in a 11/05 post.com chat “they don’t like the early buyers to be mad at them”. My question is has anyone else had similar experiences and can you share them?
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geez. either you or your bf get some chutzpah. (talking to the person who originally wrote the piece).
This is a recurring story in the DC area now. People who put down deposits on yet to be completed units, are seeing new buyers get lower prices for better floorplans/higher floors than they did. Just last week, the Post “Real Estate Live” discussion had the same exact story but to a couple who already moved in.
http://www.washingtonpost.com/wp-dyn/content/discussion/2006/02/09/DI2006020901821.html
I don’t think there’s much you can do once you close - there’s no point in driving yourself crazy, you just have to identify the things you can control and things you can’t, and focus on the things you can.
For this couple, with the deposit, but no closing yet, they might have better leverage, especially if they have any contengencies like financing, etc - they could threaten to delay closing, which will cost the builder money, because the builder is having to pay interest and maintenace fees, such as heat, security, etc. on empty units.
“He believes the Baltimore region is sufficiently buffered to survive whatever market fluctuations come along.”
Notice the trend here? Every article from around the country has the locals claiming “we’re immune to any declines..our economy is always good…..can’t happen here….blah….blah”
And to top it off, Baltimore is a dump. Unfortunately had to spend most of my life up until a few years ago living in MD. Can’t believe what friends of mine have paid for a shi**y rowhouse in downtown. One of them lives in Federal Hill (paid around $300k for an old, tiny, decrepit mess of a rowhouse) and has a bum that always sleeps on his stoop. Also had his car broken in to twice in a week. But prices will continue to skyrocket so I guess it doesn’t matter….but I digress…….
I tend to agree with RenterMa with the overall NE economy. We are much less dependant on one industry. The MA economy is fairly diversified, with lots of finance, some tech left, and some insurance. Unfortunately jobs have been lagging, and those that lost theirs in the tech/Telecom bust, have had a very hard time getting another one. Meanwhile, the prices for housing have gone up on a average 150% since 1999. My salary has dropped 33% since 1999. No way I can even come close to afford something right now, and most of the people I worked with are in the same boat. Instead of annual pay raises, they have had annual pay cuts. I have been looking for another job, and so far, I have not had any luck whatsoever. Either there are a lot of people looking for a job, or companies are not hiring at decent wages, expecting PhD level employees with McDonalds level salaries.
On another note, a lot of people have been having trouble getting rid of their second house once they moved into a new one. I have seen several empty houses in my area that have been for sale for a long time, suddenly a sold sign goes on, and the sign is taken down a few days later, but here is the kicker. Nobody occupies the house again. The house is empty, no drapes, no lights, nothing.