Maryland Real Estate Update

Although nobody truly knows where the bottom or top of anything is until after the fact, this is a compelling argument that the turn is not too far off in the distance.  Between the combination of built up demand, low interest rates, and the fact that we will know who will be the new President in about 6 months, this may be the best buying opportunity to come along in a long time. 

Even though the national housing outlook has continued to deteriorate this spring, which is normally the peak home buying season, housing is expected to start climbing into positive territory before the end of the year in some parts of the country, according to NAHB’s state and top 100 metro housing starts forecast for 2008-2009.
Continuing turmoil in the credit markets and a weakening economy guarantee that “housing markets will face another challenging year in 2008 before any meaningful recovery takes hold in 2009,” the NAHB forecast says.
The credit market crisis alone, which started with last summer’s subprime mortgage meltdown and has since resulted in a broad-based mortgage credit crunch for prospective home buyers, has depressed housing sector activity by an additional 30%, NAHB economists calculate. As a result, housing permits nationwide have plunged to only 37% of their levels at the height of the boom in 2005.
“Anticipation of further declines in house prices in many markets will keep demand soft and additions to supply minimal in the near term,” the forecast says. “Foreclosures threaten to dump additional houses back into markets with already bloated inventories of unsold homes.

“But the level of distress in local and regional housing markets is far from uniform. While the annual figures will be negative for most markets, our forecast is for recovery in a number of areas by the fourth quarter of 2008.”
The Northeast will be the first to emerge from the current housing correction, with several states turning the corner in the third quarter and most by the fourth, according to the forecast.
“While some of these markets experienced rapid price appreciation over the decade, the largest markets — New York, Boston and Philadelphia — avoided the extent of over-building that accompanied the price run-ups in other markets,” the study says. “The absence of large unsold inventories will help to mitigate the downward pressure on prices that will drag out the recovery process in markets that have similarly elevated housing prices but also have large inventories.”
A growth patch for single-family housing starts in the Northeast during this year’s fourth quarter encompasses all of the New England states and extends into New York, New Jersey and Maryland in the Mid-Atlantic region. “Moving away from the eastern seaboard, markets in the western and northern parts of these states experienced more moderate house price appreciation and so are less vulnerable to price corrections and inventory problems,” the report says.
Next in line for a regional housing recovery is the South, with the notable exception of Florida.
“Housing markets in Texas, Atlanta and parts of the Carolinas performed well during the housing boom,” the forecast says, “resisting the excesses that have come back to haunt other markets.” These markets weathered the onset of the cyclical correction in the industry in 2006 better than most, but they did feel the negative repercussions of 2007 and will experience a mild 2% decline in single-family construction in this year’s final quarter before returning to robust growth in the first quarter of 2009.
Most housing markets in Florida will continue to struggle through the middle of next year, NAHB predicts. “These markets have been the most volatile through the boom and bust of this housing cycle and will be the slowest to recover from the heights of speculative excess,” and they have also been hard hit by escalating foreclosure rates.
Pensacola, where prices and production stayed closer to historical norms during the boom years, and Jacksonville, where production surged but price appreciation was more restrained, will experience weakness this year but are expected to display more strength in 2009 compared to other Florida markets.
Although the Midwest on the whole is expected to move into a recovery mode next year, prospects are a bit divided between the region’s eastern industrial states, which are projected to experience further declines in the second half of 2008 as the result of ongoing economic weakness, and the western farm states, which will show signs of improvement earlier stemming from flourishing agricultural commodities.
The West will be the slowest to recover, according to the NAHB forecast.
“This should not be surprising since this region is dominated by Las Vegas, Phoenix and markets in California,” the forecast says. “These markets join the Florida markets as among the most troubled in the nation. Over-production, double-digit house price appreciation, heavy reliance on subprime mortgages and rapidly rising foreclosure rates were staples of these markets through this housing cycle and most of these markets are expected to decline through the end of 2009.”
Levels of excess in western markets where prices have been on the decline are an almost certain indicator of further price erosion, the study says.
Notable exceptions to the relatively gloomy outlook for the region include:

• New Mexico, where production and price growth have been moderate and subprime mortgages and foreclosures have remained below the national average
  
• Colorado, where production and prices remained restrained, subprime borrowing has been high but foreclosures have so far been low
  
• Idaho, where production spiked during the boom put price appreciation remained modest, and subprime mortgages and foreclosures have remained low
  

The IRS does recognize four situations in which cancellation of debt will not result in tax liability for the seller. A seller may avoid tax liability:

• When the borrower receives a bankruptcy discharge and the deficiency was included in the bankruptcy
• When the borrower is insolvent at the time of the cancellation of the debt. Insolvency would occur when a borrower’s liabilities exceed assets. Note that seller would have to prove this insolvency to the IRS when filing a tax return.
• When the debt was secured by a nonrecourse loan. Under a nonrecourse loan, the lender does not have the legal right to collect a deficiency judgment from any assets of the debtor not pledged to secure the loan. While most home mortgages are do not fall into this category, purchase money loans on a person’s residence are nonrecourse in some states.
• When the tax liability from the cancellation of debt on an investment property can be offset against other business liabilities and expenses. This exception does not apply to properties occupied as a residence by the mortgagor.

In many short sales, a seller would be able to qualify under the first two of these exemptions, especially since it was almost certainly necessary to show financial hardship in order to convince the lender to agree to a short sale. However, it is the seller’s responsibility to notify the IRS why the amount in the 1099-C should not be counted as ordinary income. Otherwise, the IRS will consider the forgiven debt as income and penalize the seller for unpaid taxes.

The Governor signed some new legislation last week that changes both the way foreclosures are handled in the state and also addresses mortgage fraud among lenders and brokers.  I am not exactly sure how this may impact the market in the immediate future, however I believe the idea of making mortgage brokers more accountable is long overdue.  In the past, when we have run into trouble with lenders there has been very little that can be done.  I believe the tougher laws will be better for both Buyers and Sellers alike.  When the market began to correct in 2005, it naturally has weeded out many of the bad apples in the profession.  However stronger laws are always welcome to make sure that those who are in a position where integrity and responsibility are a must as it will help to eliminate those who do not conduct their business properly.

ANNAPOLIS, MD (April 3, 2008) – Governor Martin O’Malley joined with Senate President Thomas V. Mike Miller Jr., House Speaker Michael E. Busch, Lieutenant Governor Anthony G. Brown, community advocates and other officials today to sign emergency legislation that would help thousands of Maryland homeowners who are at risk of losing their homes and to prevent future generations of homeowners from losing their homes due to foreclosure.   

“I want to thank President Miller and Speaker Busch for working with the Administration during this session, as we put forward a legislative package to protect homeownership in Maryland,” said Governor O’Malley.  “The financial security of our families as well as the strength and health of our communities depends on our ability to help preserve and sustain homeownership in our State.  These bills help ensure that we keep people in their homes.”

The emergency bills signed today include:

• The Real Property – Recordation of Instruments Securing Mortgage Loans and Foreclosure of Mortgages and Deeds of Trust on Residential Property bill.  The legislation significantly lengthens the foreclosure process from 15 days to approximately 150 days making it fairer for homeowners and providing them with more time and notice before a foreclosure sale.  It requires a lender to wait 90 days after default before filing the foreclosure action and to send a uniform Notice of Intent to Foreclose to the homeowner 45 days prior to filing an action. It also requires personal service to notify a homeowner of impending foreclosure action and requires that a sale may not occur for 45 days after service. A lender must produce proof of ownership when filing a foreclosure action. The bill codifies the right to cure, which will allow a homeowner to stop foreclosure by paying what is owed up until one business day before the sale.

• The Real Property - Maryland Mortgage Fraud Protection Act is a comprehensive criminal mortgage fraud statute that makes mortgage fraud a crime for anyone involved in the mortgage transaction. The bill provides for significant fines and imprisonment for violators, and it also gives the court authority to order restitution and forfeiture and enhanced penalties for cases involving vulnerable adults. The bill also authorizes the Attorney General, a State’s Attorney, and the Commissioner of Financial Regulation to take action to enforce the statute. The bill allows victims of mortgage fraud to bring private action against violators. 

• The Protection of Homeowners in Foreclosure - Prohibition on Foreclosure Rescue Transactions – Enforcement is an emergency bill that bans foreclosure rescue transactions that scam homeowners out of their homes and the equity they’ve built. The bill as passed also provides additional consumer protections for people who are trying to sell their homes because they are in default.

More than a week early, the Department of Housing and Urban Development (HUD) released the new FHA and GSE (Fannie/Freddie) loan limits for 2008 today. 

1. realtor.com - 9.08 percent
2. HomeGain - 2.44 percent
3. Yahoo Real Estate - 2.25 percent
4. RE/MAX real estate - 2.21 percent
5. Rent.com - 2.19 percent
6. Zillow - 2.06 percent
7. Apartments.com - 2 percent
8. Move.com - 1.91 percent
9. ZipRealty - 1.86 percent
10. U.S. Department of Housing and Urban Development - 1.42 percent

I received a great question today from a property owner who is considering selling his home in about 3 years.  His home is about 40 years old and he was considering installing vinyl siding or painting the current shingles on the house and wanted to know what the return on the investment would be.  Although vinyl siding does help with energy efficiency, the main reason to install it would be for personal preference. 

Some of those areas are: new windows, kitchens, bathrooms, HVAC.  If you are thinking about improving your home and you are not sure how it may impact your property value down the road, just ask and I will be happy to let you know what I have seen in my experience.   

DOMP Changes Set to Take Effect February 15, 2008
Effective Friday, February 15, MRIS will change the way that it calculates Days On Market Property (DOMP).  Currently, DOMP will not reset to zero until a property has been off the market for a total of 180 consecutive days.  Effective February 15, DOMP will reset to zero when a property has been off the market for 90 days.
Why did MRIS change this policy?
MRIS periodically reviews all of its policies.  MRIS is led by a Board of Directors comprised of experienced brokers serving our region.  The expertise of the Board is further bolstered by at the MRIS Compliance Committee as well as feedback from our customers via subscriber surveys.
In 1993, MRIS selected 180 days (a half year) as the inactivity period.  It was an arbitrary number selected to represent what was then considered a complete market cycle.
Over the past few years, the entire flavor of the real estate market has changed dramatically.  Consumers buy and sell with much more frequency, the economy has been extremely volatile and 90 days, or one quarter, seems to more appropriately represent a complete market cycle.  Industry statistical reports are generated quarterly, economists form their judgments and predictions based on quarters, etc.  And 90 days is more consumer-friendly; it allows a reasonable amount of time for a homeowner to repair or refresh a property and/or redesign a marketing plan.