Home Prices downward trends

2011 will be a great year for at least two groups in the real estate market; agents and buyers. Indeed real estate agents are always the beneficiary of every activity in the market including market bubbles and burst. In the upswing they enjoy the ride with sellers, flippers and a range of others including the various financial types. In the downswing agents, savvy agents, enjoy the ride with savvy buyers and even the financial types. Well, not all banks benefit overall from downward trends – they often have to write off large debts, but the biggest looser could be buyers.

The last decade long real estate bubble may indeed have some losers, but most home owners (at least long time home owners) can hardly claim to have lost money in the aggregate – sake of their refinancing and financing funds. Many took out money (reaping virtual profits) they are now forced to repay back.

The bad news of 2011 is that home prices still have a long way down to go. A recent Case-Shiller analysis showed that home prices rose an average 19.2% (according to Peter Schiff of Wall Street Journal) per year from 1988 – 2006 – compared to an average of 3.35% over the 100 year from 1900 – 2000.

Mr. Schiff pointed out the obvious, I made the case in an earlier article, that the current housing prices still do not reflect the fundamentals. US home prices (in aggregate and in very many communities) are still beyond the realistic abilities of residents to afford. Average home price in Baltimore is still more than 30% above their realistic prices.  Meaning that many $500,000 homes are actually worth no more than $350,000.

The problem is home owners, particularly those who took out equity loans between 2000 and 2008 are in for a rude awakening if they try to sell anywhere near what those houses were appraised for during those heady days. Many home owners (see some listings in Ellicot City) are still under the illusion of what those homes are likely to attract in a realistic market. Indeed the biggest dreamers remain home builders who remain under a weird illusion that homes they built and priced for the 2000s will continue to command anywhere near those same dreamed up prices that have no basis in reality.

Many projects including bankrupt Clipper Mill green homes in Baltimore, historical Hampton continue to languish under this illusion. The original builder of this community went bankrupt in 2008 and the property changed hands in 2010, but the new owners continue to hold on to the illusions of the times.

Indeed, there will be  few unsavvy buyers in the course of the year, but the recent steal of a Washingtonville home in the Mount Washington area where a near new home that was appraised for almost $700,000 for 2010 was sold for just over $400,000 with sellers support of over $17,000 in December! The impact of such sales will soon ripple across the market and begin to have a more corrective impact on home prices in the area.

However as home prices continue their downward trend, taxes might just be on their way up as counties and municipalities look for revenues to keep their bloated budgets.  But these taxes may lead to more throw out the bump reactions as Citizens grown under the weight of heavy tax burdens.

Or, 2011 may well become the year of cuts, when local governments begin a real scale-back and avoid unrealistic appraisals or knee-jerk tax hikes.

Regardless of the impacts, 2011 will be a year of great buying opportunity, particularly for the non-investment buyer. Investment buyers may want to wait and see the impact of immigration laws before they put too much money into a sink hole. Any activity that markedly negatively impact immigration will only increase the home inventory, thereby placing an even bigger downward trend on home prices and also on rental prices in many major immigration centers – most urban areas!