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Zillow: Baltimore-area housing market bottom likely this summer

Real estate search site Zillow is predicting that the Baltimore region's housing market will hit bottom this summer.

Zillow's chief economist, Stan Humphries, said the company expects an L-shaped recovery here and in most markets, with a substantial period of flat values or small increases. He said the forecast for the end of price drops in the Baltimore area is based on several factors, including the current slowdown in declines and lower-than-average foreclosure activity.

"Over the next 12 months we’re expecting home prices to be roughly flat," he said in an interview Tuesday.

Another company, Clear Capital, also thinks 2012 will be a turning-point year for the area -- it's predicting small gains.

Zillow says some markets have already bottomed out -- Washington, D.C. among them -- and it expects more to follow suit this year.

“Baltimore is kind of middle of the pack,” Humphries said.

Zillow's expectation for a national end to price declines: late this year or early next year. (In an earlier survey of economists, Zillow found that the consensus is a decline this year and a modest increase the next.)

The reason Zillow expects a "long, flat bottom" for many markets is that negative equity -- people owing more on their mortgages than their homes are worth -- is substantial. That problem feeds foreclosures, which in turn "restrain" price growth, Humphries said.

Zillow also expects foreclosure activity to pick up as a result of the attorneys general settlement (after a months-long slowdown in the wake of the robo-signing scandal), but Humphries notes that it might not get back to the pre-scandal peak.

"It could be ... that the pace has been altered to be forever lowered because of the due diligence that has now been put in place, and really you couldn’t achieve the numbers you saw in third quarter 2010 without really cutting corners," he said.

Zillow's longer-term prediction on home prices in markets like Baltimore is for "very modest" price growth in the two to four years following bottom, followed by "more normal rates of appreciation" in the 2.5 percent to 5 percent range per year.

Home values in both the Baltimore area and the nation as a whole are down 25 percent since the peak, according to Zillow's calculations, so it would take a long while to get back to that point.

"We’re roughly about five, six years into the housing recession right now," Humphries said. To claw back to the peak, "depending on the market, that’s more like another 10 to 15 years, probably."

Others are even less optimistic. Yale economics professor Robert Shiller -- of Standard & Poor's/Case-Shiller home price index fame -- told Reuters Insider this week that a housing rebound could take at least a generation.

Humphries also chatted with me about inventory, because the drop in the number of homes for sale is bedeviling would-be buyers here and across the country. He's expecting to see more homes put on the market in fits and starts as "sidelined sellers" -- those who unsucessfully tried to sell before or who wanted to get out and didn't even try -- see improving market data as their sign to "rush to the exits."

Zillow's conclusions are based on its "Zestimates" of all homes' values, calculations that have taken a lot of flak over the years, though more for the results on individual properties than writ large. (Median error by region listed here.)

Zillow now also calculates estimates for what each home could rent for and says those numbers are up almost 10 percent in the Baltimore area vs. a year ago.

"Rentals in Baltimore are doing quite well," Humphries said.

What's your prediction for when the housing market will hit bottom?

Got a housing news tip or experience to share? (Or just want to tell me something?) Email me at jhopkins@baltsun.com.

Copyright © 2014, The Baltimore Sun
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