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!

Happy New Year! (And, Happy Birthday, Angela Toner!).  With the new year comes the inevitable questions: Will Ellicott City home sales and home prices increase for 2011? No one knows for sure, but  market factors seem to indicate that Ellicott City home prices will remain flat – or even dip a bit more – in 2011, but the pace of home sales may kick off the new year with a bang.

So, what are the factors that will influence Ellicott City home prices, and home sales, in 2011?

RISING MORTGAGE RATES. Mortgage rates have been on the rise the past 90 days, and are predicted to continue to rise through year’s end.  Rising rates are good/bad news for home sellers.  Good news, because rising rates give buyers a sense of urgency – they want to buy quickly, before rates rise again.  But, rising rates decrease the amount of home they can afford – putting downward pressure on prices.

SUPPLY AND DEMAND. Because of excellent schools like Centennial High School, demand for homes for sale nearby Centennial has always been relatively strong from potential home buyers.  However – home buyers’ enthusiasm level in 2011 is tempered by the knowledge that Ellicott City home prices have fallen steadily for four years in a row. In 2011, more than ever before, Ellicott City home buyers have a cautious, “I can wait” attitude.  If you know the sale price and date of  Ellicott City home, this government website lets you calculate it’s approximate value today. Or, for a more accurate valuation of your specific Ellicott City home’s value – free – click here.

While demand is a bit dampened overall, there is a constant supply of homes hitting the market every week.  Not just “willing” sellers, but “unwilling” ones too – as with Ellicott City foreclosures and “short sales”. The good news is that Howard County MD home foreclosure rates – and Ellicott City foreclosure rates in particular – are well below national averages (see prior blog). But – even at these lower rates, they still increase the “supply” of homes, putting downward pressure on prices.

TIGHT BANK APPRAISALS. The collapse of housing prices affects everyone, but banks most of all, with total bank losses estimated anywhere from $1 Trillion up to $4-5 Trillion.   When banks lose that kind of money, it’s understandable they’re now a tad “over-cautious” to approve new loans.  Appraisers are under pressure from banks to come in with low appraisal values – so even if 2011 home buyers were willing to pay higher prices (which they’re not), the banker-appraiser-Federal regulator cartel wouldn’t let them.

TEMPORARY “SPIKES” AND “DROPS” DURING 2011. The above indicators tell us that Ellicott City home prices will not increase anytime this year – or, frankly, anytime for the next 3-5 years – and they could dip another 2-5% this year.  However, we see rising interest rates, plus the threat of possible lowering of conforming loan limits [reported in the Wall Street Journal] as leading to an “early spring.”  Ellicott City home sellers contemplating a sale in 2011 would do well to get their home on the market early – even February – rather than the typical April listing time frame.  [And, with interest rates rising, Ellicott City home buyers would also do well to act quickly].

SELLER OR BUYER CONSULTATION – $349 VALUE – YOURS FREE. Click here to learn about our Free SELL-SMART™ Consultation [including our unique AccuPrice® market valuation of your home]. Or, request our BUY-SMART™ Consultation.  Including materials, both are valued at $349, and both are FREE as a courtesy to you for visiting the John And Angela blog.

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.

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.”

Today MSNBC reports “Home prices fall by sharpest annual rate ever”.   The report cites a 16.6% average price drop in home values nationwide as revealed by the Case-Shiller Home Price Index.   The numbers reflect an average home price of $164,570 in August 2008 versus an average price nationwide of $197,370 a year prior.

Bad news for would-be home sellers, good news for home buyers, but what do our local numbers say?

For the same period, August 2007 versus August 2008, average home values in Howard County fell 7.05% according to the Metropolitan Regional Information Service (“MRIS”). Not great news for local home sellers, but less than half the average drop in home prices that the nation experienced as a whole. (Click here to request a monthly update of Howard County home sales – including average prices # of homes sold, # of homes unsold each month).

Why is Howard County holding its own in the current housing market?  Partly it is due to our strong local economy, including the coming B.R.A.C. (Base Reallignment Commission) job transfers to Ft. Meade.  Probably also due in part to the very strong Howard County public school system.   I believe it is also a reflection of the fact that “what goes up (less) must also come down (less).”  During the boom of 2002-2005 other area county’s prices went up higher and faster than Howard County’s, so it is only natural to expect our prices to “deflate” at a calmer pace too.

One other factor is that home foreclosures in Howard County are at a lower rate than other counties, meaning foreclosures and short sales are having less of an influence on prices here.  However, home foreclosures and short sales can still be found in Howard County HERE.

Depending on who you believe, the proposed $700 Billion “bailout” currently stalled in Congress is either a reward for greedy and irresponsible Wall Street Bankers, or is a noble effort to stave off a long-lasting depression to our economy.  In reality, it’s probably a bit of both.

As I write (October 1, 2008 8:20am) it is unclear whether any such plan will pass Congress.  And, how will your home’s value be affected if the plan does pass?  If it doesn’t? And, more to the point, if you are currently selling your Howard County home – or thinking about it – how will you personally be affected?

(By the way, the single best article I’ve found to explain the “bailout”, or the Troubled Asset Relief Programme [TARP], is on The Economist website).

There Will Be Fewer Home Buyers

Whether the proposal passes Congress or not, there will be fewer home buyers than there are today. Credit markets have tightened already – but they will be even tighter in the future. If the proposal fails to pass, lenders will be even more severe in their requirements than they are today.  Expect to see 10% cash down payments required of buyers (rather than the 0% or 3% of yesterday), higher credit scores and tighter home appraisals.

Mark Twain said, “Once a cat sits on a hot stove, he’ll never sit on a hot stove again… but he won’t sit on a cold one either.”  This will describe lender behavior in the future.  Having lent too much money to poorly qualified home buyers, they will “correct” this by lender very little money, and only to extremely well qualified buyers.

But, what if the proposal passes Congress?  If that is the case, it may be better for the housing market than a failure to pass would be, but it will still mean a decrease in lending over what we have seen up until now.   With lenders relieved of much of their current bad debt, they will still be reluctant to loan money in the future – though they’d be more willing with a bailout than without one.

Prices Will Continue To Fall Or Remain Flat

I have sold real estate in Howard County for 20 years and, among my close friends and associates, no one is predicting any increase in home prices for at least five years. This is based on multiple factors, including the trend of 1990 – 1998 following the last seller’s market in our area (1985 – 1988), and based on our (still) inflated cost of purchase versus rental value ratio. (See recent Howard County home price trends here).

Simply put – prices can’t rise until both lenders standards loosen (which won’t happen anytime soon) AND wage/price inflation catches up to our high home prices (relative to the rest of the economy).

For an article on Howard County home price trends – and seller strategies for our current market – click here.

So What Should You Do?

If you don’t need to move anytime in the next 5 years or more, don’t fret.  True, your home’s value may fluctuate, but it only matters at the point you decide to sell. And, relatively speaking, Howard County home prices have traditionally been one of the more stable in the country.

However, if you plan to move or need to move in the next year or so, my advice would be that sooner is better than later.  And price your home to sell quickly – because any delay in selling will likely cost you even more, as prices decline further.    Click here for a FREE, no obligations market valuation of your home’s value.

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.