Real Estate Information

"What are the 3 bigest challenges we are going to face in the 2010 housing market?" A good friend and VP at SunTrust Bank, Bill Peele, asked me this very questions at lunch today. My reply was as follows: 

1) Unemployment over 10% and around 20% if you account for the “Under-employed” or those who have given up looking.

2) Fannie Mae and Freddie Mac are still in trouble receiving over $500 billion dollars of Bail out money.

3) Payment Option ARMs are due to reset within the next 2 years with most borrowers being unable or unwilling to take on a higher payment.

I feel that Challenge #3 is the biggest problem of the 3 numbered challenges. Subprime mortgages almost brought down the country and financial system in 2007 and 2008 followed closely by Alt-A Mortgages (No Documentation, Stated Loans, and Little Documentation loans). This year starts the massive challenge of dealing with the Payment Option ARM loans or the so called “Pick a Payment Loan” that Wachovia was still running commercials on television in late 2008. If you are unfamiliar with this type of loan, the borrower gets a choice of whether they want to make a full payment, an Interest Only payment, or a “Minimum monthly payment”. The Minimum monthly payment is the MAJOR issue as in most cases it was 1%-2% of the loan amount which in turn leads to negative amortization which increases the mortgage balance instead of decreasing it. Couple that with Real estate values decreasing and you have a recipe for disaster.

I would love to hear what you think we will face in 2010!

Nick Gioia | www.ngrealtygroup.com

Jamie Smith Hopkins of the Real Estate Wonk wrote a very informative neighborhood review of Lock Raven Village and Knettishall that home buyers searching in Towson and Parkville may find helpful.

Neighborhoods: Loch Raven Village and Knettishall

Location: Mostly in Towson (Baltimore County)

Average sales price: $219,000 (January through June)

Notable features: Loch Raven Village and Knettishall have 1940s and '50s brick townhouses with more personality than most of the newer stuff. The yards are large enough for flower gardens, as you can see above, and Interstate 695 is less than a mile away. (Why "mostly in Towson"? Because the eastern half of Loch Raven Village is in Parkville.)

You've got all the locational benefits of Towson here -- malls, colleges, recreation -- without the usual Towson price. The 380-acre Cromwell Valley Park, which has a demonstration farm illustrating "sustainable" and organic practices, is a short drive from the neighborhood.

Of course, this is all true of fellow gem Lake Walker, a short drive to the south and just over the city line. So why pick Lake Walker and these twin Towson neighborhoods if they're so close together? Simple:

Because some people want to live in the city and some don't. The property tax rate is a common point of contention -- it's a little more than twice as much in the city as it is in the county.

So, to each his own. Loch Raven Village and Knettishall don't have the variety of housing types you can find in Lake Walker, but they're well-kept and wear their neighborhood pride on their sleeve, or rather their utility poles:

   
Here's an example of the architecture in Loch Raven Village, which the neighbors describe as "Georgian colonial":

Patriotic front yards:

And depending on the time of year, you might just happen across a farm stand on Putty Hill Avenue:

Wonk reader bryanintimonium nominated Loch Raven Village and Knettishall without comment, so I went hunting for details that could confirm or deny their hidden-gem status. I drove past both for years without realizing they existed, so that seemed a good start.

Mrs. Kirk, a real estate agent in Timonium, said she's been selling homes in the neighborhoods for 11 years and considers them gems.

"People love living there," Kirk said. "It's definitely a good area."

It reminds Kirk of Rodgers Forge, except less pricey. You'll also spend less than you would have before the housing slump ate away at home values. Homes in Loch Raven Village and Knettishall were going for more than $250,000 a few years ago, she said.

The two neighborhoods have a similar feel, but the Loch Raven Village homes are generally larger and the styles are a bit different. Ralph Simmers Jr., who built Knettishall with his father, based his design on the English townhouses he saw while in the Air Force during World War II. Knettishall is named after the village where he was stationed.

Leslie Jackson-Vallade, a mother of two who's lived in Loch Raven Village for 10 years, says lots of families live in the neighborhood because the townhouses are big enough to accommodate the space-eating needs of kids. Her home has three bedrooms, two bathrooms, a "huge" attic and a finished basement.

"We're a very close-knit group," added Jackson-Vallade, treasurer of the Loch Raven Village Community Association. "It's really conducive to young families."

Other residents have deep roots. Janice Krach grew up in Loch Raven Village, went away to college and came back. Since 1975 she's lived in Knettishall.

"It's a nice location," she said. "It's so easy to get to all the places in the Baltimore metro area."

Have personal experience with Loch Raven Village or Knettishall? Do share.

Nick Gioia | www.ngrealtygroup.com

The committee charged with mapping out new boundaries for Riderwood and Rodgers Forge elementary schools, as well as the new 451-seat West Towson Elementary School scheduled to open in August, has voted to recommend Scenario G -- the only one of the four proposed scenarios on the table that was one of four options that would keep the 1,777-townhouse community of Rodgers Forge intact -- to the Baltimore County Board of Education for its approval.

At a meeting on Wednesday evening, the 10 members of the West Towson Boundary Study Committee who were eligible to vote initally cast 7 votes for Scenario G and 3 votes for Scenario A-1, which would have removed 400 houses north of Stevenson Lane from the Rodgers Forge Elementary School district.

They then voted as a group to recommend G to Barbara Walker, central area assistant superintendent for Baltimore County Public Schools.

Walker cautioned the process is far from over.

She can accept, reject or amend the committee's recommendation when she makes her own recommendation to Superintendent of Schools Dr. Joe Hairston by next Wednesday, she said.

In fact, members of the committee asked her to consider amendments for Scenario G that would include Gaywood's 140 homes in the Rodgers Forge district and Ruxton Ridge children in the West Towson district.

The Board of Education will review the committee's recommendation, Walker's recommmendation and Hairston's recommendation before holding a public hearing Feb. 24 at 7 p.m.at Loch Raven High School.

Nick Gioia | www.ngrealtygroup.com

Greater Baltimore’s home foreclosures increased nearly 28 percent in the past year, but the region’s housing market has weathered the storm far better than some hard-hit parts of the country, according to California foreclosure tracking firm RealtyTrac.

The Baltimore City and Baltimore County ranked 108 out of 203 metro areas examined in RealtyTrac’s Year-End 2009 Metropolitan Foreclosure Market Report released Thursday. There were 15,064 properties that received foreclosure notices in 2009, or nearly 1.4 percent of the region’s housing market. That’s up 27.9 percent from the year before and up 88.7 percent from 2007.

Carroll County, Howard County, Harford County and Anne Arundel County posted a combined 16,260 foreclosure notices in 2009, for a rate of 2.6 percent of housing units. That’s up 1.4 percent from 2008.

In the Baltimore Metropolitan area, the hardest hit housing market was Howard County  where 9 percent of all homes received foreclosure notices in the past year.

Nick Gioia | www.ngrealtygroup.com

Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more than expected after lawmakers gave buyers extra time to use a tax credit. The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It was set to expire Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners. December's sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the National Association of Realtors said Monday. Sales had been expected to fall by about 10 percent. In Baltimore City, Baltimore County, Howard County, Harford County and Carroll County, home sales rose almost 10 percent compared with a year ago, according to Metropolitan Regional Information Systems. The local figures are not seasonally adjusted to allow for true month-to-month comparisons.

Nick Gioia | www.NGRealtyGroup.com

The FHA announces changes to ensure its long-term financial soundness late last week.

A brief overview of changes are: 1) HUD will allow the financing of the Mortgage Insurance Premium (MIP) - it will be raised from 1.75 to 2.25% via Mortgagee Letter ;  2) There will be a FICO floor - anyone below 580 will have a 10% down payment, anyone over 580 will remain at 3.5% which will be done by notice and comment; and 3) The annual premium of .55 is intended to be increased via legislation. 

These are painful but necessary steps.  HUD did not increase down payments because they were concerned that deserving, first- time and entry-level buyers will be shut out of homeownership.  While some REALTOR members were concerned with seller concessions being reduced from 6 to 3%, FHA had no choice as this is tantamount to seller-funded down payment which was a primary cause of the FHA fund ration being reduced.  The seller concession will be implemented by proposed regulation, so NAR will have time to comment regarding that if appropriate.

Nick Gioia | www.ngrealtygroup.com

WOW!  To many REO, Inverse Purchase, Short Sale and Wholesale investors, prayers have been answered!

Our (now) friends at the FHA have just amended the 90 day seasoning/flipping rules! The laws previously insisted you hold title to a property for ninety days before even entering into a contract if you wanted to sell to a buyer using an FHA loan in Baltimore City, Baltimore County, Carroll County, Harford County or Howard County.

Yeah yeah yeah, had they done this years ago, the economy may not be quite in the pooper like it is now, but nonetheless, this is big news to the creative real estate investor!

There’s certainly some “stipulations” on the process, but strangely enough, none of them seem too ridiculous… which is odd for HUD, but we’ll take it! (from the HUD website)

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Click here to view the HUD Waiver Requirements

Healthy Neighborhoods Consortium and Chicanos Por la Causa Inc. were awarded more than $31 million in federal stimulus funds to help stabilize some of Baltimore City's hardest-hit residential neighborhoods.

Federal Housing and Urban Development Secretary Shaun Donovan announced the awards as part of his department’s Neighborhood Stabilization Program. The Baltimore City funds were part of a package of $2 billion in awards announced by Donovan.

“Vacant homes have a debilitating effect on neighborhoods and often lead to reduced property values, blight, and neighborhood decay,” Donovan said in a statement.

The groups will focus their efforts on buying, renovating and getting new residents into foreclosed homes across Baltimore City.

Their efforts will focus on the following city neighborhoods: Charles Village, Northwood, Patterson Park, Ashburton, Idlewood and Mt. Washington.

Healthy Neighborhoods Consortium is a group that includes Healthy neighborhoods Inc., the city housing department and St. Ambrose Husing Aid Center. Other partners are Chesapeake Habitat for Humanity, Druid Heights Community Development Corp., and Telesis Baltimore Corp.

“The award of these funds reaffirms the strength of our neighborhoods and Baltimore’s history of effective partnerships with neighborhoods, lenders, nonprofits and the city government,” Healthy Neighborhoods President Mark Sissman said in a statement.

Supported by Mi Casa Inc., Chicanos Por La Causa will focus its efforts on properties in the Patterson Park neighborhood.

 Nick Gioia | www.ngrealtygroup.com

Two new reports on the Baltimore City commercial real estate market show that about one-fifth of office space in the city is vacant, a marked increase over last year and a sign that a commercial real estate recovery for the region may still be a ways off.

In addition, average rental rates for commercial space have not adjusted significantly downward to meet low demand for space.

Like a lot of markets, we haven’t seen the effect of the fact that we’re at or close to the bottom of the market.

Our fourth-quarter office report generated from Costar pegged Baltimore City's overall vacancy rate in the downtown business district at 18.6 percent and overall office vacancy in the city as a whole at 20.1 percent.

Vacancy numbers in the region, as a whole, buoyed by a promising number of lease signings in Harford County, Howard County and Baltimore County increased to 16.1 percent, according to the report. Harford County, which has seen several major tenants come to the area because of the federal Base Realignment and Closure process, has an overall vacancy rate of just 4.6 percent.

Even though I can not see into the future, based on the numbers I predict that 2010 will be a transitional year, with rental rates continuing to drop as tenants continue their “flight to quality.”

The Baltimore office market is continuing to show some signs of rebirth but the overall sense is still one of malaise,” based on MRIS and Costar data.

When we see this type of inverted curve in our market trending reports it signals an opportunity to buy. Real estate investors, those that would stand to benefit from the next cycle, "it’s time for to start to make acquisitions". There’s a lot of capital on the sidelines waiting for the second shoe to drop in this market.

Surprisingly, average rental rates in the city have stayed about the same as of last quarter, at $25.78 per square foot for prime retail and office space downtown.

These numbers are skewed due to the 127,000 square feet of space leased this year at the new Legg Mason building in Harbor East. That building, according to some estimates, commands rents of nearly twice the city average for full-service office rentals.

Another report released Monday by Lutherville’s MacKenzie Commercial Real Estate Services presents a slightly more dire picture, with an overall vacancy rate of 21.66 percent in the city’s downtown business district and 20.49 percent of all office space vacant in the city overall.

The MacKenzie report also shows a lower average asking rent of about $20.01 for the city, down $2.37 from the last quarter, suggesting that rents in the city actually are adjusting to attract tenants for vacant space.

Across the region, MacKenzie pegs the overall office vacancy rate at 16.78 percent. That’s up from 15.14 percent last year. The firm’s yearly vacancy comparisons are particularly striking in Baltimore City, with last year’s 13.56 percent vacancy rate rising more than eight points to 21.68 percent in the fourth quarter of 2009.

Nick Gioia | www.ngrealtygroup.com

You will likely come across dozens of properties in foreclosure with little or no equity, that is, "the seller owes at close to or more than the property is worth". In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a "short sale."

Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department.” More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.

From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee's, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. Your job as the listing agent is to convince the lender that it will fare better by accepting less money now.

The lender will want some information about the property, the borrower and the deal he has made with you. Specifically, the lender wants to know what the property is worth. The lender will hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”).  Buyers often have common misconceptions that a short sale is a good deal. In general, the bank will only deviate 7-10% from the appraised or BPO value. Furthermore, if the seller has a second mortgage it is almost impossible to obtain approval. Does anyone remember 80/20 and 80/15/5 loans buyers were getting a few years ago?

The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he is broke and unable to afford the payments. The borrower must show that he has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie, just paint a picture that doesn’t look good.

Finally, the lender generally wants to see a written contract between you and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. You can prepare your own HUD-1, and simply write “preliminary” on the top.

Don’t be surprised if your short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you “steal.” Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes - if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value.

Nick Gioia | www.ngrealtygroup.com