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.

Whether you are buying or selling a home in Howard County (or both), here are some real estate terms that can be useful in pricing your home (if a seller), pricing  your offer (if a buyer) and in negotiating (both).  (By the way, you can request either a print or online version of our free negotiating guide, Hot Tips For Today’s Market, which can be very useful to Howard County home buyers or sellers, by clicking here).

MRIS

The Metropolitan Regional Information Service, is the house “listing” network owned by state and local Realtor® associations in Maryland, DC, and Virginia.  As of October 2008 there are 53,686 Realtor® members of MRIS across Maryland, DC and Virginia.  When any Realtor®member posts or “lists” a home for sale in the MRIS, it is accessible through the MRIS to every other Realtor®member in the MRIS network, as well as to consumers through various online portals such as HomesDataBase.com, Realtor.com, and different individual Realtor®websites through IDX information sharing agreements.

DOM

DOM, or “D.O.M.”, means days on market. It measures the length of time between when a home is “listed” for sale on the MRIS until the day a buyer contracts to buy it.  (The length of time between contract date and actual, final “settlement” is not a measured statistic, but typically is about 30- 45 days from date of contract).

Note: days on market can be “manipulated.”  A Realtor® member of MRIS can essentially “reboot” a home listing, creating a “fresh” MRIS I.D. number, and reset the DOM “clock” back to zero.  To counteract this, the MRIS system typically posts two DOM numbers, one for the DOM of the current listing and another for the total DOM under all listings for that home.  However, if a home is completely “off” the system for 91 days or more and is then re-listed, then both DOM numbers will be re-set to zero.

“Inventory” Levels

The total number of homes “for sale” divided by the current rate of home sales per month (or, how long would it take to sell all homes currently on the market, at today’s sales rate, assuming no new homes came on the market).  Example: if there are 450 homes currently for sale, and average rate of sales is 50 homes per month, the “level of home inventory” would be 9.0 months (450 homes divided by 50 sales per month = 9.0 “months of inventory”).  Supposedly a six month inventory level = a “balanced” market, less than six months is a “seller’s” market, and more than six months is a “buyer’s” market.  But these are approximate measuring sticks and other factors, of course, apply.

Also, when looking at inventory levels, pay attention not only to “general” levels but also to the inventory level for your specific target home. For example, in September 2008 Howard County had a county-wide total inventory level of 8.0 months (1933 homes for sale divided by 241 sales/month). However, in the million dollar plus category the inventory level was a whopping 43 months (172 homes for sale divided by 4 sales/month).

The Standard & Poor’s/Case-Shiller home price index tracks price trends and inventory levels in the top 20 U.S. cities.  However, real estate is an extremely localized sport and buyers/sellers in Howard County would do well to obtain local stats, either county-wide or zip-code/neighborhood specific stats, which can be requested here.

 List-2-Sale Ratio

The list-to-sale ratio measures a home’s final, actual sale price as compared to its asking price. For example, is a seller’s asking price is $500,000 but the home actually sells for $475,000, then the list-to-sale ratio would be 95.0%  ($475,000 sale price divided by $500,000 asking price).  Each month MRIS releases statistics for home sales in all of Howard County, including the average list-to-sale ratio for all sales in the prior month.

“Subsidy” or “Cash Credit” 

When a seller gives a cash credit to a buyer, whether for buyer’s closing costs, a repair credit, or otherwise, it is posted on the MRIS system as a seller “subsidy”, meaning the seller was “subsidizing” the buyer’s closing costs.  The common term in practice, however, is “cash credit”.

Note: the amount of a subsidy, or cash credit, on individual sales is posted on individual MRIS listings that have sold. However, there is no source of data for the average cash credit paid in the county.  Why not?  Honestly, I have no clue. I guess it would just be too darned useful, and the powers that be want buyers, sellers and agents to just have to work that much harder!

Putting It All Together

In the next post on negotiating we’ll discuss how to use the types of information listed above in pricing your home (sellers), your offer (buyers), and in negotiating (both). 

Questions? Comments?

Please post any questions or comments on this blog, or email me at john@JohnAndAngela.com.

This is the second in a series of short articles on Howard County Maryland’s real estate market from the buyer’s viewpoint. For other articles see: How to Value A Home (Recognizing Value); Finding Great Deals – Auctions & Foreclosures; Finding Great Deals – FSBO and Short Sales; Finding Great Deals – Realtor® MRIS; and How To Negotiate A Great Deal.

FINDING Great Deals – FSBO and ‘Short Sales’

Where is the best place to look for a great deal on a home in Howard County today? For sale by owner? Auction or foreclosure? “Short sale”? Word-of-mouth? The Realtor® owned multiple listing service, MRIS? Let’s review each.

Homes “For Sale By Owner”

The National Association of  Realtors® tracks homes sales all across the country. Of homes offered for sale “by owner”, fewer than 18% actually sell.

One reason is limited marketing – individual owners don’t have the experience or money to market their home as well as an army of local Realtors® can. And, unlike the Realtor® MRIS system, there is no single, reliable source for all ‘by owner’ listings.  Newspaper ads are hit-or-miss, and ‘by-owner’ websites are notoriously out-of-date, being both over- and under-inclusive (they continue to post ‘by owner’ homes that have gone off the market or have been listed with a Realtor®, and they fail to include a majority of ‘by owner’ homes that currently are for sale).

A second reason most ‘by owner’ homes don’t sell is because they typically aren’t staged or priced well.  Most owners tend to have biased view of their own home, and often ask too high a price while at the same time taking too little care to ‘spruce up’ or “stage” their home for the market.

Can you ever find a good deal on a “by owner” home? Sure. One reason is that, on the rare occasion when a home actually does sell “by owner”, 42% of the time it’s between family members and/or close friends, according to the National Association of Realtors.

Even if you don’t know the owner, you can sometimes negotiate a good price with a ‘by owner’ seller. But, if you are not experienced in negotiating purchases in the hundreds of thousands of dollars, you may wish to allow a Realtor® to act as your buyer’s agent. Not only can a buyer’s agent protect you in preparing contract papers correctly, they can also arrange to have expert professionals inspect the home for problems. And, more often than not a good buyer’s agent will be able to negotiate a better deal with the owner than you could yourself.

So – if you have a family member or close friend selling their home, “by owner” may be a good way to find a “good deal” on a home. Generally speaking, though, you are far, far more likely to find 10 good deals on the Realtor® MRIS system than to find just one good deal “by owner.”

(For the most complete Howard County home search – ‘by owner’ AND Realtor® listed homes – click here).

Howard County “Short Sales”

Short sale defined: a lender allows a property to be sold for less than the remaining balance on the mortgage loan, forgiving the unpaid remainder.

In the typical sale only two parties must agree on price and terms: buyer and seller. But, in a short sale a third party – the seller’s lender – must also agree to the terms of sale.  (Bankrate.com has a simple and clear article on the short sale process here).

Suppose a home is worth $375,000, the current owner owes $400,000 and costs of sale will be $28,000 – meaning the owner is “short” $53,000 from being able to sell ($375,000 value, less $28,000 sale costs, is $347,000 or $53,000 “short” of the $400,000 mortgage balance). If the owner is cash-flush he can sell the home for less than the mortgage amount, and pay the difference ($53,000) in cash.

However, in today’s market a lot of owners owe more than their homes are now worth and they don’t have any assets to pay the difference. In such cases, the homes can only be sold if the lender agrees to a “short sale”, agreeing to accept less than full payment on the mortgage.

Why Would A Lender Agree To A Short Sale?

When a home owner gets in financial trouble the lender has no good options. If they agree to a short sale the lender will “lose” thousands on the unpaid mortgage amount. However, foreclosing on the homeowner isn’t must better as the lender will likely lose the same amount on the unpaid mortgage amount and will also have to pay the legal costs of a foreclosure. And, a foreclosure can add months and months of delay, which a lender will want to avoid. Agreeing to a short sale is often the lesser of two evils.

How Do You Find Short Sales In Howard County?

Virtually all short sales can be find via the Realtor®-owned Metropolitan Regional Information System (“MRIS”). It’s simple. Lenders who agree to a short sale want the home sold as quickly as possible and they will always choose to market short sales through a Realtor® who can “list” the home on the MRIS.

What Are The Benefits, And Risks, Of Buying A Short Sale?

The benefit of buying a short sale home is that it can be offered at an attractive price. (However, this is not always true, and just as often a “normal” sale may be offered at an equally or even more attractive price than many short sales).

The downside of buying a short sale is long delays and complicated paperwork.

Suppose a home is offered for sale at $375,000 and you want to offer $360,000 with $5,000 back for closing costs. An individual seller will give you an answer typically within 24 hours. However, in a short sale you are dealing with a “committee” at a bank, often at a distance of thousand of miles. You easily may not get an answer back for literally weeks.

And, even when you do get an “answer”, it may be simple a request that you submit additional paperwork. In a short sale the paperwork is much more complicated and it is easy for an inexperienced agent to neglect an important detail. So, you can make an offer, wait 2-3 weeks for an answer, and be told “we need document X completed plus two info on two additional comparable sold homes.” You may not hear a real response for an additional 2-3 weeks.

Any Realtor® who has access to the MRIS can help you find short sale properties. However, the process of actually buying a short sale can be somewhat ugly unless your agent is experienced in such matters.

Questions/comments? Please email me.

I wasn’t sure I liked the Feds taking over Fannie Mae and Freddie Mac, but the stock market loved it… yesterday.  Today, however, was a different story.  Today’s drop of 279 points gave back 90% of yesterday’s 1-day gains.

It’s true that the Feds have no authority to take over Fannie and Freddie (if they do, I’d love to hear the Article and Section of the Constitution that gives them that authority), but I also oppose it on practical grounds.  The troubles our current real estate market is facing WILL subside on their own.  It’s as if the housing market has a “fever”, but the fever will help kill the “bug” that’s giving us trouble.  If we only mask the fever, the bug lives – and grows – to wreck more harm down the line.

Sad – but our consumer driven culture, thinking only of short-term bliss and ignoring long-term pain – is now in full control of congress too.  By postponing the housing market’s day of reckoning, the feds have only insured that that day will be worse when if finally does come.

YHS, John Toner

One reason I didn’t like the Fed takeover is that I’m old-fashioned, meaning I like the government having Consti