Howard County Home Price Trends - 1978 to 2010

Howard County home buyers and sellers ask me all the time, “Where are home prices headed?” And, more bluntly, “When will Howard County home prices start going up again?”  All predictions are risky and, truth is, no one knows for sure. But I believe home prices in Howard County will  neither increase or decrease significantly over the next two to four years.  (We publish a print newsletter on Howard County real estate trends monthly. To receive future and/or past issues, FREE, click here).

There is downward pressure on our Howard County home prices based on history (this blog), and based on current and likely future mortgage changes (next blog).  However, the Baltimore/Washington regional economy is stronger than the national average, and the Ft. Meade economic boost to Howard County in particular (future blog) helps “balance” downward price pressure.

Howard County Home Prices – 1978 to 2010

To understand the future it’s good to know the past.  Using statistics from the Federal Housing Finance Agency, I developed the price chart above to track the change in home prices in Howard County from 1978 to 2010.  Using a base price of $100,000 in 1978, the wavy blue line tracts actual fluctuations, the thin red line tracts a fictitious straight-line appreciation rate of 5.6% per year (an average appreciation rate for the U.S. over the past 40 years).  Each of the colored panels represents a nine year period.

From 1981 to 1989 (the first green rectangle) Howard County home prices went both up and down. But, in the nine years overall actual price changes tracked perfectly with the 5.6% straight line appreciation level.

In the next nine years, 1990 to 1998, prices remained almost flat.  This was partly due to the recession of ’89 to ’93 as well as tax code changes affecting investment real estate.  In Montgomery county, to the south, homes lost value during this time – but Howard County merely had largely flat prices.

From 1999 to 2007 Howard County home prices shot off like a rocket, climbing 129.8% over nine years. In fact, in just six years ending in ’06 prices jumped 115%. If that rate of increase had continued another six years, the average home price in the county would have hit $1,000,000. This was obviously not sustainable.

The last pink rectangle shows Howard county home prices have falling 15.3% from the market’s peak in ’07 to ’10, which includes a slight uptick of 3.2% on prices in 2010.  While discouraging news to sellers, our decline has been less than the average decline in the U.S., estimated at 23.2%.  Our decline has also been softer than even some other local areas – parts of Prince George’s county have seen 45% – 52% price declines from the peak.

By the way, if you are “curious” about the current value and/or change in value in a particular Howard County home, either yours or one you are considering buying, you can get a general guestimate at FHFA.gov or get a more specific valuation free by email here.

History Will Repeat Itself… But Which History?

Will Ellicott City home prices repeat history from ’02 to ’05 in the next four years?  Will Columbia MD home prices repeat ’08 to ’10 the next three years?  The most likely “guess”, I believe, is that Howard County home prices in the next 2 – 5 years will look much like the 90′s in our area – with little up or down swing.

Even with the 15.3% drop already priced into today’s Howard County home prices, we are still above the staight-line 5.6% sustainable appreciation rate.  And, the types of mortgage changes being contemplated by the Feds (see my coming blog) will have, I believe, a stifling effect on potential price increases typical Ellicott City home prices similar to the effect the tax code changes had in the early 90′s.

Two additional factors keeping downward pressure on prices are present and future contemplated changes to the mortgage industry (my next blog).  But, the present and coming BRAC boost to Ft Meade employment, as well as the Balto/Washington regional economy in general, will have a positive impact on house prices (future blog) that will net out, I believe, to yield an overall flat home price picture over the next 2-4 years.

And, if you (or your FRIENDS!) are thinking of buying or selling a Howard County home in the near future, call me (410-772-5400 work, 443-420-7041 Google Voice) or click here.  Thanks for reading!

Metropolitan Regional Information Services (“MRIS”) just released home sale statistics for Howard County in October 2008, and home sales took their biggest hit of 2008.

Of 1,759 homes for sale last month only 124 sold – or 1 out of 14.2 – meaning we had a 14.2 month “inventory” level (it would take 14.2 months to sell all current homes on the market at last month’s sales level assuming no new homes came on the market).

That is a significant fall from October’s figure of 9.1 months.  For the homes that did sell last month the average time-on-market was 120.  The average sales price was 9.9% below the seller’s asking price.  [For complete details of November's sales and/or a pdf file of prior months' Howard County home sales click here].

What happened?

Although real estate trends tend to be complex with a variety of factors influencing the market, I think last month’s fall is pretty easy to understand.  The evening news, with a nightly drone of “economic meltdown” and “Great Depression II”, scared the living cr*p out of people! (MSNBC.com even has a new speciality section “The Economy In Turmoil”).

In October and November consumer spending on everything fell, and the bigger the price tag (big screen TV’s, cars) the harder sales fell. So, why wouldn’t home sales – the largest investment most people ever make – fall too?  So, while I don’t believe Howard County home sales will bounce back immediately to ’05 levels, neither do I believe last month is a true measure of the market.  Rather, I believe it was an over-reaction to the media’s over-reaction to some legitimate, but limited, economic bad news.

Where to from here?

Because of the strong employment corridor between Baltimore and DC, home sales in Howard County Maryland are not influenced much by seasons of the year. Rather, our home sales are influenced mostly by “economic mood”. 

And, there is a decent chance for an up-tic in economic mood. Partly it will be in public perception – the public is already getting “media fatigue” with the economy, and the media will soon shift it’s attention to Obama’s new administration and his first 100 days in office.

Also, there are substantive changes that will improve economic mood, at least in housing.  Interest rates had been climbing for most of 2008, but over the past 60 days rates have fallen a full percent. You can get a 30 year fixed rate loan for just 5.25%, and there is new the feds may push for even lower rates.  (Check mortgage rates on WellsFargo.com here).

True, go-go days of loose credit are gone forever – today people actually have to qualify in order to get a mortgage!  But, when rates fall the cost of buying falls and, with it, (usually) comes increased demand.

The stock market seems to be stabilizing, the public is tiring of the media’s negative drone on the economy, and the fundamentals for buying real estate are improving.

I’m not predicting a return to 2005’s peak performance – but I am saying November’s huge fall in Howard County home sales is not an indicator of things to come.  The market may well level off and find “balance” in ’09 for the first time in three years. 

For more info on Howard County homes for sale, including a list of the top 10 best priced homes currently, go to JohnAndAngela.com.

I was talking with a Columbia home seller the other day about the real estate market, falling prices, etc.  She bought her home just a short while ago and had added a lot of improvements and was figuring her homes value with a formula like this: Purchase Price + Cost of Improvements = New Value.  (The Chicago Sun Times had an interesting method for “calculating” home values here).

I said, no, it doesn’t work like.  Buyer’s don’t care what you paid, for your home or improvements. All they care about is what does your home offer, by way of price and features, compared to other homes on the market today (and compared to homes just recently sold).   Yes, Howard County homes have traditional held their value – but still, your home’s value today is largely determined by what your neighbors are willing to sell for. (Request “Recent Sales In MY Neighborhood”, fee, at our main webpage).

This got me to thinking – I wonder how far home prices in Howard County Maryland really have fallen over the past few years?  So I did a little research.  I looked up ALL single family home sales in a Columbia zip code – 21045 – from July 1 through November 30.  I found 82.  I then checked the tax records on these homes to see which ones had previously sold in 2004 or later, and found 23.

I then took these 23 homes, each having sold once in 2004 – 2007 and then selling a second time in July-November 2008, and compared the first sale price to the second and discovered the following:

Howard County home sellers who bought in ’04 and sold in ’08 had a 2.8% price increase.

Howard County home sellers who bought in ’05 and sold in ’08 had a 13.8% price decrease.

Howard County home sellers who bought in ’06 and sold in ’08 had a 18.5% price decrease.

Howard County home sellers who bought in ’07 and sold in ’08 had a 14.2% price increase.

Wow.  National reports indicated that, on average, homes across America in 2008 were selling for 2004 prices, and Howard County home sales seemed to be following that trend.  What seemed most painful was for owners who bought in ’07 and sold just one year later for a 14.2% loss.

If you’d like a copy of the Excel spreadsheet used for my calculations, or other market info (including a Quik-Value of your home by email), just visit our primary webpage and request “2004 – 2008 Home Price Comparison.”

Summary. 

October’s sales stats for Howard County real estate sales, released by MRIS, show a “blending” of trends. Locally there had been signs that our market may have been approaching a “bottom”, but October saw sales of all big-ticket items falter, which lead to slower home sales locally. (Get a full print out of last 6 months home sale stats for Howard County here). 

Howard County Home Sales October 2008: The Numbers At-A-Glance

Total sales: 191

Total homes on market (unsold): 1896

“Inventory” level¹: 9.9 months (1896 divided by 191).  The trend is increasing, as it was 7.0 months in August and 8.0 months in September.

List-2-Sale Ratio²:    91.89% (about the same as prior month, 91.92%)

Days On Market: 110 days (about the same as prior month, 108).

Price Change: -8.71% over same month last year.

John’s Opinion

Leading up to October it looked like the declining real estate market was headed for a “soft landing.” In fact, in September the average price of homes sold in Howard County actually rose 3.25% from the same month in the prior year. But October saw the stock market get hammered, a giant $700 Billion bailout of the financial sector and – no surprise – huge unease about the economy everywhere.  All sales slowed: cars (including Toyota and Honda), Starbucks’ coffee (quarterly profits fell 97%) and – no surprise – housing sales fell during the month.   Was October a momentary blip or an omen of things to come? Probably neither.  Housing likely will remain “soft” through the cold weather months (typically slow anyway), but I don’t believe October’s financial sector blues are an indicator of a long-term trend in housing.  (Search active homes for sale in Howard County HERE) (Request monthly print out of Howard County Home Sales HERE)  

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 1) INVENTORY: Total number of homes “for sale” divided by current rate of sale (or, how long it would take  to sell all homes currently on the market, at today’s sale rate, if no new homes came on the market.).  A six month inventory level = a “balanced” market, over six months = a “buyer’s market.”

So you’ve found the ‘perfect home’, but how do you negotiate the best deal? Let’s begin with making your initial offer.  You can also request our 92-page guide on How To Buy And Sell Homes Like A Pro here.

What Sellers Want

In my 20 years of selling Howard County real estate I have found that sellers basically want two things: (a) the most money possible; and (b) a “sure deal.”  In other words, a bird in the hand is worth two in the bush.  If your offer looks shaky, the seller will be less likely to lower his price. But, to the extent you can convince the seller that you are a strong buyer and that your offer has a very low risk of failure, he will be more likely to give you a bit more of what you want – a lower price.

A couple of keys to showing the seller yours is a strong offer are: Making a Complete Contract Offer; Showing Strong Financial Qualification; and Presenting a Professional Package

Full Written Contract

Never make “verbal” offers. If you want the seller to take you seriously, you need to take your own offer seriously by completely a full purchase contract for any offer.

Verbal communication is 10% words, 30% tone of voice, and 60% body language.  In my experience, this principle applies to written communication too – and especially to real estate offers.

Some buyers want to make verbal offers.  “Just ask the seller if he’ll take $30,000 less.”  Bad idea.  Not only would such an “offer” be unenforceable if “accepted” (legally real estate contracts must be in writing), but the “body language” of a verbal offer communicates all the wrong things to the seller.

The “body language” of a verbal offer says “I may or may not be a reliable person” or “I don’t take the process of buying your home seriously.”  This does not encourage a seller to deal with you, nor to give you the best price.  For this reason most Howard County home sellers and/or Howard County real estate agents would reject, out of hand, any “verbal” offers.

When I write offers for buyers I insist on a complete contract offer, including primary contract (MAR ver 10/08) and all necessary addenda (inspection(s), county notices, disclosure/disclaimer, etc.), and all forms are computer-printed to be legible and neat-looking. Uusally the seller has previsously created some of these forms (MD Disclosure/Disclaimer for example) and it is a good idea to ask for copies of these forms from the seller and to include them in your offer.

When your offer is complete, with no forms missing, and everything typewritten and neat, your paperwork’s body language communicates to the seller “I am reliable” and “I will pay attention to the details through out this transaction.”  When you communicate that, you give the seller “warm fuzzies” about the strength of your offer, which may help him adjust to the fact that he’s not getting the price he wants.

When forms are missing, it communicates to the other side that you don’t pay attention to details and may prove to be unreliable during the transaction.

By the way, we provide a full copy of all such contract forms to every home buyer at our first meeting, so that you can review them well in advance of making a purchase offer. You can request sample copies of all these forms here.

Showing Strong Financial Qualification

It used to be that giving the seller a lender pre-approval letter was optional. Today it is mandatory.  Without one, your offer will be heavily discounted if not rejected outright.

There are three “levels” of lender letter: pre-qualification, pre-approval, and commitment letter.  A commitment letter is the strongest possible lender letter which is great if you can get one. But you will probably want at least a pre-approval letter.

Also, Howard County realtors and Howard County home sellers will tend to want to see a letter from a local lender, and not an Internet-based company like Lending Tree.  Internet-based lenders have a horrible reputation in Howard County for making promises that they cannot keep, causing problems both for sellers (financing fails despite lender’s written promises) and for buyers too (hidden fees and undisclosed loan points jack their prices up beyond those of any local lender).  If you insist on using an Internet-based lender despite the risks, at a minimum you should also have a pre-approval letter from a local lender as a backup.

How “local” does your lender need to be? Here’s a rough rule of thumb. If they are close enough so that I can drive to their office and slash their tires when they lie about your loan – and/or close enough so that I can reward them by referring future buyers if they do a good job – then that’s close enough.

Seriously, any good Realtor or lender should get over 50% of their business by referral. Distant Internet-based lenders don’t have to worry about their local reputation and/or screwing up a loan, but local lenders do.  Get a list of top-ranked local lenders here.

Cover Letter

In my experience we negotiate a better price with the seller, not by denegrating the quality of his property, but by “selling” on your qualities and the high quality of your offer.  And, we do this in a professional cover letter.

In every professional cover letter I will include (a) a summary of the offer terms (price, settlement date, request for cash credit); (b) a statement about your financial qualifications (large down payment, pre-approval letter, etc.); and (c) a paragraph reciting all (and I mean ALL) the benefits your offer brings to the seller.

For example, if you don’t have to sell another home in order to buy this one, I emphasize that in the cover letter.  Yes, it may be true that 90% of other home buyers are also in that position – but I emphasize every benefit possible that you bring to the seller, so that he will think you are, in fact, a “great” buyer.

(We call this the “no water in our gas” theory.  If a gas station charged 10¢ more per gallon and then advertized “no water in our gas”, it would kind of make you wonder about the other stations, wouldn’t it?  When you bring any benefit to the seller, we want to emphasize those benefits – even if 90% of all other buyers bring them too).

Also, if we know some unique “wants” the seller has and we can meet them, we mention those in the cover letter too. For example, if the seller wants to settle very quickly (or not), we mention that we can accomodate that need.

Putting together a professional cover letter is the final touch to the “body language” of your offer. It is easy to do, but it’s easier not to, and it stuns me how many agents and buyers fail to take this simple, powerful step to negotiating a better price.  You can request a sample professional cover letter here.

I tell Howard County home buyers all the time that, sometimes all you need to do to get the “best deal” is simply to recognize a great deal, and act on it, when you find it.

Take the home below.  A 4 bedroom, 2 full bath contemporary with 2 car garage and tax assessed at $444,000.  It is in clean shape, a bit dated, but extremely well priced at just $400,000.  When most homes are selling at around 97% to 103% of their tax assessment value, this home is asking a mere 90.1% of its tax assessment value.

Is it a buyer’s market right now? Heck yeah.  But, even now about 25% of all homes that sell each month are sold within 30 days or less of being listed, and sell for darned near (if not even over) their asking price – yes in 2008!  My guess is, this home at 5414 Lightning View Road in Columbia will be one of them.

For an article on understanding and calculating a home’s Assessment Value Ratio click here.

Or, you can request a list of well-priced Howard County homes here.

Priced 10% under tax assessment? Such homes sell fast.

Today’s “buyer’s market” in Howard County is in many ways the mirror image of the seller’s market of 2002 – 2005.  So, if you are selling a home in Howard County, perhaps you can benefit from mirroring strategies used back then, only in reverse. (For a Free home price analysis on your Howard County home click here).

By definition, a seller’s market comes from an over-supply of buyers and too few homes to buy. During the heyday of 2002 – 2005 we had multiple buyers going after the same home, often out-bidding one another just to be able to buy a home.  For example, suppose in one neighborhood the most recent sale was for $400,000.  An optimistic seller might ask $420,000 for the same home but, because of an over-supply of buyers and a limited supply of homes, multiple buyers “compete” for that home and it ultimately could sell for $430,000.

During the seller’s market I saw both Howard County home buyers who “got it”, and others who didn’t. Buyers who didn’t “get it” were “too smart” to “overpay” for a home. When they saw an asking price of $420,000 and they knew a neighbor had sold the same home for $400,000, they were “smart” and bid $400,000.

During a seller’s market, these “smart” buyers would lose, twice. First, they would lose the home with their $400,000 bid, as other buyers would compete and it ultimately sold for $430,000. But, even worse, they would lose because the next home to come on the market would come at an even higher price – say $435,000 – and would sell for higher too, say $450,000.

These “smart” buyers assured themselves of either never buying a home, or if they did, of paying far more than they could have if they’d just been willing to pay a little bit more earlier on.  I would see folks bid $495,000 for a home asking $470,000, when four months earlier they refused to bid $430,000 on the same home, because they would not “overpay” on a home asking $420,000.

A buyer in a seller’s market is swimming against the tide, and being successful required being “crazy” and bidding $260,000 on a $250,000 home (so you wouldn’t later have to pay $310,000 for the same home just four months later). Crazy, yeah… like a fox.

(For access to all homes for sale today and/or for information on recent sales, click for this free service).

Flash forward to today.

In Howard County real estate today we are in a reverse market to that of 2002 – 2005, with an over-supply of homes for sale and an under-supply of buyers. And, as before, we have some sellers who “get it” and others who don’t.

Sellers who don’t get it are “too smart” to “under price” their home. When they see a neighbor sell for $400,000, they want $425,000 (because, after all, they figure their own home is nicer than the neighbor’s was).

Sadly, though, since the neighbor’s home sold for $400,000 another ten homes have come on the market, and at least four are asking $390,000 or less. So, the “smart” seller’s home with a $425,000 price just sits, unsold, while the $390,000 homes sell.

Just as the $425,000 seller begins to get it, and lowers her price to $395,000 – it’s too late, as another few homes come out asking $380,000.  By being “too smart” to “under price” her home, this seller will either never sell, or will ultimately sell for tens of thousands less than she could have if she’d only be “crazy” enough to price her home aggressively to begin with.

Back in the seller’s market it was counter-intuitive for a buyer to “over-pay”. However, the sellers market required buyers to be aggressive – and the faster a buyer understood this, the more money they “saved”.

So, too, today it may seem counter-intuitive to sellers to “under-price” their home. However, the current buyer’s market requires sellers to be aggressive – and the longer a seller take to ‘get’ this, the more money it will cost them.

For two plus years real estate sales in Howard County have been soft. And, while not as soft as other parts of the country, this has local buyers hunting for “a great deal.” But, if you are a home buyer in this market – how can you be sure of getting a “great deal”? And, if you are a home seller right now – how do you make sure that your home is a “great deal”, so that someone will buy it?

This will be the first of three short articles on the buying side of this market: (1) How to Recognize a Good Deal; (2) How to Find The Good Deals; and (3) How To Negotiate A Good Deals. Afterwards, we’ll write about this market from the seller’s point of view.

How To VALUE A Home

(RECOGNIZING a “Good Deal”)

Over the years we’ve developed something we call the Current Assessment Ratio to use as a rule of thumb to determine when a home purchase is a “good deal” or not compared to the current market.

First, we research a sampling of recent Howard County home sales. We take the average Howard County tax assessment value of these homes and then divide that number by the average sale price of those homes (less the value of seller cash credits given to buyers). 

This site allows you to search all homes for sale in Howarad County by any Realtor(R).  However, to find the records for Howard County homes that have actually sold recently, you need to contact a local realtor, like the John and Angela Team. 

Here’s an example. Suppose a sampling of 10 recent sales of single family homes shows an average sale price of $400,000, average cash credit from seller to buyer of $6,000 and an average property tax assessment value of $415,000. You would take the average sales price ($400,000), subtract the average seller cash credit ($6,000) and divide by the average property tax assessment value of $415,000 to yield a Current Assessment Value of 105.3%.

Now you have a tool to assess the reasonableness of any home’s asking price.  (For help in determining this ratio and/or for questions or other help checking the pricing of any Howard County home for sale, contact the John and Angela Team by email).

Suppose you’ve seen 10 homes and really like Elm Street the best. They’re asking $485,000 – is it a good deal?  All you need is to locate the Howard County property tax record for Elm Street, look at it’s current assessed value, multiple that value times the Current Assessment Ratio, and voila – you have a very good measure of the home’s “real” value in today’s market.

In the above example, if Elm Street’s assessment is, say, $475,000, that means it is already “priced to sell”, as it’s asking price of $485,000 is only 2.1% above it’s assessed value, while most homes are selling at 5.3% above assessed value. But, if Elm Street’s assessment was only $410,000, that means its Current Assessment Ratio is 118.3% – the owner is asking 18.3% more than its assessment value, even though most homes sell for only 5.3% above assessment value.

The Current Assessment Ratio is a tool for determining, generally, a home’s value in the current market. It does not replace the need for an appraisal, and of course different homes will sell for varying degrees above, and below, the Current Assessment Ratio. However, for being a simple-to-use rule of thumb, the Current Assessment Ratio is an excellent help for determining when a home is priced well or not.   (Contact the John and Angela Team to get more information on Howard County market trends and home prices).

Next time: How To FIND Good Deals On Homes In Howard County.

JT

Howard County home prices continued to soften last month, and may well continue to do so through the first quarter of 2009.

Realtor owned Metropolitan Regional Information Systems (“MRIS”) just released the latest figures for Howard County Maryland home sales for August 2008.  Among other services, MRIS allows Howard County home buyers direct access to all homes for sale in Howard County.

Of 1,923 homes for sale county-wide, 275 sold, or roughly 1 in 7.  The average sale price of $438,483 was a 7% drop from August 2007 ($471,740).  The average “days on market”, or time it took to attract a contract, was nearly four months at 108 days (a 54% increase over August 2007′s 70 days).

With the continuing soft real estate market in Howard County, it is more important than ever to “price it right” to begin with.  Numerous studies by the National Association of Realtors confirm that overpricing a home in the beginning typically leads to a much longer time on market and, after numerous price drops, a final sale price significantly lower than homes that are priced accurately to begin with.

How can you get an accurate idea of your home’s value?  First, focus on actual sale prices of homes that have sold, not the “asking price” of homes that haven’t sold. (You can request a list of recently sold Howard County homes here).  You can ask an local realtor to give you a market valuation (be sure they are familiar with your neighborhood or village within Howard County), or get a bank appraiser to appraise your home (typical cost $400).

One additional option – you can request a Free AccuPrice valuation of your Howard County home online.

Fall may bring a bit of relief to home sellers – we’ll talk about that in the next entry.  JT