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Metropolitan Regional Information Services (“MRIS”) just released home sale statistics for Howard County in December 2008. What did we learn?

First and foremost, the “death knell” to home sales we saw in October and November was, indeed, short lived. The stock market crash in late September and October, and a nightly new barrage of terms like “economic meltdown” hammered car sales, Starbucks® sales and – yes, Virginia – home sales.

For most of 2008 we saw a monthly sales rate of 1-out-of-9: of 9 homes for sale each month, one sold and 8 didn’t. It would vary a bit (low of 7.2, high of 10.9), but in November the sales rate sank to 1-out-of-14.2!

In December, the rate of sales returned to a “normal” range (for 2008). Of the 1,622 homes for sale in the county 171 actually sold. While not a record setting pace, it yields a rate of 1-out-of-9.5 – pretty darned close to the yearly average. [For complete details of December's sales and/or a pdf file of prior months' Howard County home sales click here].

Where to next?

I am still awaiting the year-end results for 2008, which MRIS has yet to release (as of 1/26/2009). Figures will likely show that prices county-wide fell by about 9.4% and that, on average, each month only one home sold for every 9.2 “for sale” that month. I’ll publish those as soon as MRIS releases them, or click here to have these stats automatically emailed to you when they are released.

The coming year may be a transition year for local real estate. On the negative side, many of the factors that have driven prices down will still be in play this year. But on the positive side, the Housing Affordability Index is now close to an all-time high.(See National Housing Affordability Index and/or Maryland Housing Affordability Index).

This is due in part to recently falling prices and also to historically low interest rates (some as low as

4.875% fixed). (Check mortgage rates on WellsFargo.com here).

My predictions aren’t always accurate – though they were for November and December. I think this coming year may see prices decline a bit more for the first half, with a “bottom” in the second half and/or a possible slight rise in prices late in the year. For more info on Howard County homes for sale, including a list of the top 10 best priced homes currently, go to JohnAndAngela.com.

Where are home prices headed in 2009 for Howard County Maryland?  Will Columbia Maryland home prices fall even more?  Will Ellicott City town home prices finally begin a recovery?

This past week I’ve reviewed close to 40 different articles online making “predictions” on where the real estate market is heading for 2009.  I’ll summarize what they say, but first a quick review of the past.

During the home price run up of 2001 – 2006 there were precious few voices of sanity.  As with the tech stock boom of the 1990’s, most “experts” were declaring a “new era” in home values and that “old rules” no longer applied.  Nearly everyone predicted a continual rise in home prices as far as the eye could see.  In other words, from ’01 thru ’06 nearly every prediction was for a continuation of the recent past. 

Fast forward to January 2009.

Today you see the same thing in reverse.  Whether you read BuilderOnline.com or HousingPredictor.com, CNNMoney.com or MSNBC-Real-Estate, they all are making basically the same prediction – that the coming year will be a continuation of the recent past.  Last time “everyone” predicted a continued rise in home prices; this time “everyone” is predicting a continued decline in home prices. 

My point: if “everyone” was wrong before (that home prices will keep rising), they just may be wrong again (that home prices will keep falling). 

I can make two predictions about Howard County home prices that are almost certain. First, no one can accurately predict the exact date of a market bottom in advance.  Second, 90% of buyers and investors who are waiting for a market bottom will miss the opportunity.  [Request your free monthly update on Howard County home price trends by email here].

Again, only a fool would predict a market bottom in advance, but here are some national and local factors that will influence home prices in the near future:

• Housing is one of the 3 “basic” human needs (food, clothing, shelter) – there will always be demand.
• Huge federal spending is likely to drive inflation up – which tends to drive stocks down in value but housing up in value.
• The feds have focused like a laser on the economy and specifically housing.  Mortgage rates have fallen a full one percent over the past 90 days.
• The new administration is likely to do even more to protect real estate values.
• Locally, Howard County Maryland is sandwiched between two major metro areas and our pet industry is the federal government and ancillary private industries.  Whether “liberal” or “conservative”, you must agree that the odds of the federal government payroll shrinking is almost nonexistent.

My prediction for Howard County home prices in 2009?  I don’t have one – other than to say that, if “everyone” is saying home prices will continue their fall through out 2009, that alone may be a sign that prices are about to recover.  Click here to get a free list of the top ten best priced homes in your price range.

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.”

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.

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