Joshua, overall I agree with your post, but I disagree that Baltimore doesn’t have a housing bubble (or at least did). And sure, it’s area specific. But let me quote:

Baltimore Sun showing the trendy areas (Canton, Feddy Hill) declining:
http://www.baltimoresun.com/business/realestate/bal-homesalescity0210,0,79734.flash

A more general “city” trend via this site:
http://www.housingtracker.net/old_housingtracker/location/Maryland/Baltimore/

Lastly, my own blog (trying not to plug…) showing the HUGE decrease that happened at McHenry Pointe in Locust Point (complete with sales records):
http://www.mypocketchange.com/2007/04/03/paying-800month-more-than-your-neighbor-for-the-same-property-an-example-of-the-baltimore-housing-bubble-bursting/

I am currently looking in Locust Point myself, and here’s where I agree with you. There are some great deals that aren’t going to lower (much) anytime soon. But I would argue Baltimore has *already* gone through a down turn. So, perhaps there isn’t a bubble now, but there certainly *was* one last year, even in Baltimore. Even BRAC couldn’t save it completely! =)

But like I said, I do agree that now is a good time to buy (I’m doing it myself).

In the long term a house is obviously a great investment. But I certainly think Baltimore is experiencing a downturn or at least stagnation in home values. There has just been so much new construction on top of a decent amount of existing inventory. New construction in the area is now priced a lot lower. The new homes along Fort in Riverside are advertised as starting at $399,000. Three years ago they probably would have been selling for $450,000 starting. The Ruppert homes in Locust Point drastically cut their pre-construction prices about 18 months ago. I’m not sure I could sell my house today for what I paid three and a half years ago. So to me, we’re definitely in a slump. But in the long term were all fine. Hopefully sooner than later.

I personally thought Ruppert homes was asking way too much even for a hot market.

This is really a misleading article. While Baltimore isn’t nearly as bad as other markets, prices have dropped, will likely continue to drop for at least another year, and then will stay flat for a long time. I don’t know anyone who is prediciting that housing prices here or anywhere will rise in the next 3-5 years. And lets be honest. If you buy a house now and best case, prices stay flat, you will still end up losing money if you want to sell anytime in the next five years. For a $300 k house, factor in $18k for realtors fees and at least $5k in closing costs, so you’d need house prices to rise over $20k just to break even. I know this because I’m about to lose a signifcant amount of $$ on a house we bought in 2006 which I’m selling for less than I bought it for. I’m selling now, because I’d rather take a small hit now than a big hit in a few years. I think its misleading and wrong to tell people to buy now, unless you plan on staying there for at least 10 years (which few people do). Thats my two cents.

See my latest blog post, where I say that I’m not really interested in “housing markets” because every deal is different. You bought in 2006? Let me check my calendar- according to my calculations, that was less than three years ago! A house is a long term investment- I’m not a “day-trader” or a “flipper”.

No matter what “The Housing Market” is doing, you can still get a bad deal. On the other hand, you can still make money. I can’t put it any simpler than that.

Joshua,
No offense, but put down the crack pipe dude. House prices have been crushed, absolutely crushed. Lennar was originally asking $1.2 for Federal Place. After selling one, that’s right one house, they blew out the entire project (inventory plus lots) for $0.40 on the dollar. Now the new owners (TerraNova investments?) is asking $695K starting and offering $85K in incentives and they still can’t sell any.

NV Homes originally owned options on the land on Fort. They sold one house, that’s right, one house at a little over $500K. They chose not to take down their options on the remaining lots and a local builder picked up the lots, with a new asking price for the houses of $399K. Nice haircut. They are still not selling.

Pulte Homes built the McHenry Point project over looking a rail yard in Locust Point. When I originally went to look at the models, they ware starting at $675K. Now the same houses are selling in the low $400s if they sell at all.

Dude, home prices are falling. You are well below 2003 levels, which is when I moved here.

Baltimore as a housing market has historically traded at a median valuation of 12x rents (on average) over the full housing cycle that began in the early 1990s. After peaking at over 20x rents in 2006, we are only back to 15x rents, so just to get back to the median level, house prices need to fall another 20-30% over the next few years while rents rise 4%. With 15 months of supply based on trailing sales volume (much more based on forward volume considering volume is falling off a cliff). Markets always overshoot on the upside and the downside, this time will be no different. Three to five months of inventory would be keep supply and demand in normal balance.

Have you ever run a DCF analysis on your own house based on what you could rent the house for, taking into account taxes and transaction costs? I’m 100% certain that the fair value would be much lower than what you could sell your house for right now, even with prices depressed.

Renting has been more attractive then buying for years and it still is. That won’t always be the case, which is why after living hear since 2003, I’m finally sniffing around, but we won’t hit bottom for another two years at least.

Either way, your right about one thing, over the very long term (20 years) you usually do better renting then buying on average, but it depends on where you live and when you buy and sell.

In my opinion, the best work on out their on long-term house returns has been done by Robert Schiller from Yale. You should look it up before you make such silly statements.. however, then again, you are a realtor, so why should we expect you to analyze the economic fundamentals.. its your job to sell houses.

Good luck brother!

Dude, I don’t smoke crack. You lost me after that.
Do me a favor, when you’ve finished sniffing and are ready to buy a house, call some other real estate agent, OK?
Good luck brother!

A bubble is a variance from intrinsic value. Because the intrinsic value of a house is difficult to measure, we reduce this to local, regional, or national median values based on market prices. Bubble becomes a layman explanation for the state of the market. General consensus is we have a real estate bubble in most national markets, Baltimore included. I’m not sure who you are trying to fool.

I’ll agree with some of your points about buying a house. Owning a house will protect from inflation. There can be security and pride in ownership (there can also be fewer worries about repair costs or being tied down when renting). If someone is planning on staying put 7 or more years and finds a relatively “good deal” (I’d say offer at least 10% under asking), buying could make sense! But, prices will likely decline even further than they already have in most areas. Google some stats on how out of whack prices are with rents and incomes, it’s not sustainable. Either prices will fall or stagnate for a long time to allow income and inflation to catch up.

This kind of over-zealous sales pitch from real estate agents (same we’ve heard for years) and the rabid “keeping up with the joneses” attitude of buyers is what helped cause the housing bubble in the first place. Now we have after-effects like increases in foreclosures. The fact is that in the first half of the decade more people bought houses than should have based on income, likelihood of moving, etc. They were lured by low interest rates, “investment potential”, and convincing sales pitches from NAR saying we need to “hurry or be priced out forever!” Prices were pushed above sustainable levels further by investment speculators buying multiple properties. Now we are left with a massive housing stock and over-inflated prices. Many I know were convinced to buy 3-5 years ago and are now stuck, pricing below what they owe and unable to sell when they need to. Buyers beware! Educate yourself, don’t just listen to sales pitches of a real estate salesman!

I would agree with most of what ChuckD says… and he didn’t insult me.

Joshua,
I apologize if I insulted you. I realize my comments on my post that was apparently deleted last night may have been a little harsh. Oh, and the crack pipe metaphor seems to have flown over your head. The 2% commission that Realtors earn is like crack in that many Realtors become addicted and will say or do anything to get their next hit (commission), even if it means not giving a fair analysis of the fundamentals of the housing market.

If I sound like I have a beef with your profession, well I sort of do. My problem with Realtors is that recommend that their clients buy something that they themselves often don’t always fully understand and know how to value. The always look at “comps” and assume that because one house sold for a certain price, that others must be worth the same, neglecting the fact that the entire market could be overvalued based on other more relevant valuation metrics Most Realtors due little to no due diligence on topics like asset valuation, the fundamentals of the market, an individual clients tax situation, etc.

I have spent my entire adult life studying, analyzing, and valuing assets, and it irritates me that so many Realtors were running around in ‘04, ‘05, and ‘06 recommending that people buy houses while doing no due diligence on the housing market, the rent versus buy decision, house valuations relative to incomes and rents, etc. People wrongly relied on Realtors to do these things, and now 30% of people who took our mortgages in 2005 and 2006 are underwater.

Also, I think Lawrence Yun, who is the chief economist for NAR, should be arrested. Many Realtors weren’t educated enough on valuing assets and the fundamentals of the market to steer their clients away from making poor decisions, no did they have any fiduciary responsibility to do so to the best of my knowledge. However, Yun repeatedly cheered on the market and distorted the true picture of what was going on, and he was smart enough to know damn well that valuations were unsustainable. I don’t know how he sleeps at night considering the billions of dollars of wealth he played a role in destroying.

Oh well, I guess such is life. Again, I apologize if I insulted you personally (its sometimes easier to do so on the net then in person), this is just a topic I’m fairly passionate about and I hate seeing that so many people were hurt. No hard feelings!

Well, alrighty. Look, I first got my license in ‘88, during a big run-up in prices that occurred in the late 80’s. I told people then that I thought (some) houses were overvalued, and I steered people away from (some) mortgage packages. Let me tell you, I didn’t make any friends in the real estate profession when I did that back then! A lot of people ended up underwater then too. Also, I know some real estate companies that I wouldn’t want to do business with, to put it mildly. However, professional ethics prohibits me from telling you which companies! Yes, there are bad people in the world, and some of them are real estate agents. I agree with ChuckD that you should educate yourself, and be careful.

Fair enough. Sounds like you’ve been around long enough to have seen a full cycle. I enjoy this blog, so I’ll keep checking back to see when you think home prices have gotten really cheap!

FYI, Joshua, here’s a really informative blog (http://blog.franklyrealty.com/) from a Realtor in NOVA (yeah, different area, but many of his thoughts are applicable here). He’s got some good insight on topics for sellers, buyers and agents, thought you might find it interesting. Seems pretty no-nonsense and I detect little bias for a salesman, which is admittedly tough to do.

Josh,
Pretty lame responses. First off, I’d love to know where the good deals are in Baltimore right now- show me a neighborhood where prices are appreciating.

Second, I’m not a “flipper”. Like most people who live in Federal Hill, we expected to live here a few years and then move on to something bigger to accomodate our growing family. If not for the current market, we’d probably stay another year or two, but I want to try and get out before prices drop futher, which they will.

In retrospect, I obviously wouldn’t have bought this house, but we made money on our last house and while I didn’t expect to make any money off this, I certainly didn’t expect prices to crash.

While we’re probably going to lose at least $30k IF we sell this house, we’re fortunate that we put a lot down and should come out with some money left. You can’t imagine how many people didn’t put any money down and are now underwater on their mortgage and probably don’t even know it.

And for a lot of people like myself, waiting out the market for the next five to ten years is not an option, as we live in a 2br house with one child and we’re planning on another. So, I would also expect a huge increase in foreclosures which will further drag down prices.

The one thing that should have tipped me off is that all the RE agents we worked with in 2006 had just sold their Fed Hill houses. So they knew prices were going down, but were happy to sell, even to people like us, who they knew were going to be here short-term. Lying to people seems like a pretty lousy way to make a living to me. Anyway, good luck selling houses to people that will be a losing investment.

Lets face it, at the height of the real estate boom, prices were outrageous. If you bought at the top of the market, you probably lost some money, but probably a lot less in Baltimore than the rest of the country. It seems as if in Baltimore, prices have just gone back to reasonable levels. While there’s still people out there that are trying to get the ridiculous prices of a year ago, there are still deals to be had. While the amateur investors have gotten out of the game, the experts still see increasing value in many of Baltimore neighborhoods. Baltimore’s economy is still growing, bringing residents with it. That’s not to mention the 30,000 jobs expected to be added as a result of BRAC. This will likely lessen the real estate downturn in the area. Also, from what I understand the hardest hit sector of the market were homes over $400,000. Even harder hit were homes over a million. If you bought that penthouse condo or a pierhome last year, you might be hurting a bit. However, if you bought a $60,000 rowhouse in Pigtown or Charles north, you’re probably sitting real pretty. As many of the posts alluded, its really all relative, and I guess the old adage “location, location, location” really does apply.