By Jamie Smith Hopkins, The Baltimore Sun
August 19, 2012
The home Azam Khan sold on Fairbank Road in Northwest Baltimore last month strikes the real estate agent as a prime example of market shift. It changed hands for about $25,000 more than each of the similar Cape Cods that sold on the street last year — and it's smaller to boot.
In a growing number of Baltimore-area neighborhoods, home prices have stopped their years-long march downward. Some areas have stabilized. Some actually are heading up.
"The traditionally stronger neighborhoods are definitely on the rise," said Khan, who represented the seller of the three-bedroom, $312,000 home on Fairbank Road in Mount Washington. "The buyers are out there, definitely, and the sellers are now more willing to sell because they think they can get the prices they couldn't have gotten a year ago or two years ago."
Average sale prices remained flat or rose in more than half of the Baltimore region during the first six months of the year, compared with 2011's first half, according to a Baltimore Sun analysis of data from Rockville-based RealEstate Business Intelligence. By contrast, just a quarter of Baltimore-area communities avoided declines in average prices during the first half of last year.
It's the latest evidence that the housing bust is over. Some buyers are even getting into bidding wars for the choicest deals.
But for owners who bought during the housing bubble in the middle part of the last decade, there's still a long way to go.
Tens of thousands of local homeowners are underwater on their mortgages after earlier price declines, and it could be many years before they all resurface. Home values in the Baltimore metro area are down 24 percent since peaking six years ago, according to Fiserv, a financial services technology company that tracks repeat sales of homes.
"We think that prices are bottoming right about now," said David Stiff, chief economist at Fiserv.
He expects prices in the Baltimore area will rise modestly later this year and jump 7 percent between early next year and early 2014. Mortgage rates near record lows help fuel demand, but the main pressure pushing prices is fewer homes for sale — supply dropped as demand picked up.
It would take 61/2 months to sell everything on the market at the pace set this year. That's the lowest figure for the region since the first half of 2007, so early in the financial crisis that it didn't seem like a crisis at all.
Many owners underwater on their loans might like to sell, but they can't unless they can cover the difference or persuade their lender to take a loss. Stiff speculates that others who could sell are waiting for larger price increases.
The biggest threat to the price recovery may be the volatile foreclosure market. The number of bank-owned homes for sale plummeted across the region during the first half of the year, ranging from a 20 percent drop in Howard County to 44 percent in Harford County. For buyers, that has meant fewer low-priced options; for sellers, less competition.
The drop in bank-owned homes for sale came after mortgage servicers — buffeted by reports nationwide of shoddy and illegal foreclosure practices — hit the brakes on new cases and auctions.
But that slowdown seems to be over. The rate of new foreclosure cases was higher in Maryland than in any other state nationwide during the spring, according to the Mortgage Bankers Association.
Foreclosures could hit the market in larger numbers later this year, depending on how fast servicers move and how many homeowners are able to negotiate a loan modification or other alternative.
David McIlvaine Sr., an Ellicott City real estate agent who specializes in foreclosures, said he's been hearing from banks for many months that an uptick is imminent.
At any one time in late 2008 and 2009, when the housing bust was in full swing, the Keller Williams Select Realtors agent was handling 35 to 50 bank-owned homes. Now? Four — three of which drew multiple offers from buyers.
Foreclosures typically are the lowest-priced homes on the market. With fewer in the mix, average prices have soared in some Baltimore-area neighborhoods — far beyond any increase that individual homeowners enjoyed.
About three of every 10 ZIP codes in the Baltimore region posted double-digit price gains on average in the first half of this year. Baltimore's 21217 ZIP, which includes the neighborhoods of Reservoir Hill and Druid Heights, zoomed up more than 50 percent — to $93,000.
The sales data comes from RealEstate Business Intelligence, an arm of multiple-listing service Metropolitan Regional Information Systems. ZIP codes and city neighborhoods were excluded if they didn't have at least five sales in each year.
The latest data show that far fewer buyers snagged a home for under $10,000, a surprisingly common transaction in the city for a short while. During the first half of last year, 10 percent of Baltimore home sales went for less than that — more than 270 in all. This year? 120.
The cheapest of the cheap, a foreclosed home a few blocks from North Avenue, sold for a dollar in May to a nonprofit group. (Not a typo, confirmed Carole Murphy-Adams, a Long & Foster real estate agent involved in the transaction. "Basically, the bank just donated it," she said.)
Lynn Ikle, a real estate agent who leads Redfin's Baltimore market team, said plenty of local residents are ready to buy but can't find what they want — or can't get it before someone else does.
"It's just slim pickings," she said. Clients who had hoped to buy in the spring, when homes for sale are usually more numerous, "are looking at me with these puppy dog eyes: 'Is there going to be anything else?' "
E Yang and husband Lei Chen are in that boat. The Cockeysville couple is looking for something pretty specific: a single-family house in the Timonium or Pinewood elementary school districts in Baltimore County for $300,000 or less. Yang said one or two suitable homes hit the market each month.
Since they started looking at the end of last year, they've made offers on two homes but were topped by other buyers each time. Yang thinks she'll have to move fast when good deals appear: She made an appointment to see a home the day after it hit the market this month. In the few hours between her request and the appointment, the seller accepted another buyer's contract.
"It's very frustrating," said Yang, 33, who is finishing her dissertation for a doctorate in economics. "When you find something, you're excited and really hopeful for it. And then you find you don't even have time to take a look."
She's glad her infant daughter is years away from school. Otherwise, the pressure really would be on. "We still have time," she said.
Sherry Clair had the opposite experience when she tried to sell her renovated three-bedroom house in Cockeysville two years ago. No luck. Not a single offer. "I couldn't drop my price fast enough to keep up with the market drop — and of course, you don't want to take a loss on it."
The computer-assisted design production manager rented the home out instead. But being a landlord has proved to be a headache, and she's again trying to sell.
"I'm hoping that the market has changed enough in two years that something may happen now," Clair said.
Fiserv's Stiff expects more homes will hit the market in batches over time, as rising prices lift owners into positive-equity territory and convince others that it's finally time to move. So, while he's predicting a 7 percent increase in home prices between early 2013 and early 2014, he thinks buyers will have more to choose from after that, capping price gains.
"We're likely to see some bounces and then a lot of sideways," he said.
One big unknown for the Baltimore region — like the Washington region — is the extent and effect of federal budget cuts. If Congress doesn't vote to stop the large "sequestration" reductions starting in January, economists expect they will hit government-dependent Maryland in an outsized way.
Another constraint on price increases is the much more cautious way appraisals have been done since the crash. Appraiser Sharon Cremen said people in the business are erring on the conservative side when estimating values, even if buyers are willing to pay more than others did for similar properties in recent months. And if a bank doesn't think a property is worth what the buyer offered, it usually won't OK the mortgage without a larger down payment.
These days, Cremen says, it generally takes purchases paid for in cash or significant home improvements to raise prices.
"That's how they start creeping up, but it takes a long time," said Cremen, of Cremen Appraisal & Consulting in Forest Hill.
Dominic Cantalupo with Champion Realty in Pasadena has had deals, including one two months ago, with prices that passed the appraisal test — and then the bank sent another appraiser.
But he said the market is noticeably better for sellers than it had been in the last several years. If a home is priced right and looks good, "you're probably going to get a buyer and pretty quickly."
"It seems that the bloodletting has stopped," he said.
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