Thursday, January 31, 2013

What holds for 2013 Real Estate in B'more

Forecasting the course of real estate in Baltimore has been very difficult over the past several years due to widely conflicting data and opinions.  But since mid-summer several trends have become apparent that give better clarity to what the future holds.  Several facts have now become obvious:

1) Interest rate on mortgages will remain unusually low for at least the next two years, so says the Chairman of the Federal Reserve.

2) Rents in Baltimore are on the rise due to shortages and a lack of new construction. The average rent for all properties in Baltimore City is now $1,350 a month, a 9% increase over last year.

3) The sale of distressed property remains elevated but not as high as in the past. In Baltimore City foreclosures and short sales represent about 25% of all transactions and in the suburbs the percentage is in the low teens Many of these properties are being offered at a price that is below actual market value to produce a quick sale.

4) The government lending agencies are offering credit-qualified buyers attractive terms regarding the purchase of distressed property owned by these agencies. 

5) A “shadow inventory” of homes with delinquent mortgages, but not yet in foreclosure,  will insure a continuing supply of distressed property for sale for the next couple of years. But the inventory overhang is not as high as in the past as the market begins to heal itself. Prices are rising rapidly in those areas that fell the most and less so in the more stable areas. Price rises in the city are generally over 10% and as much as 30% in the hardest hit neighborhoods. In the suburbs the increases range from 5-10%. Continuing modest increases as expected throughout 2013 and beyond. 

 What does this mean for perspective buyers ?

 Three groups can benefit handsomely from the current state of the affairs:  (1) Persons currently renting, (2) Investors and (3) those desiring to “move up” or buy vacation property.

Movedown buyers have been "frozen" the past few years as they saw their equity shrink. But an improving market brings these buyers more confidence and a "thaw" is in prograss, particularly in the higher price ranges. 

Persons currently renting can reduce their housing costs or increase the quality of their housing by buying at the abnormally low interest rates and prices now in effect.  Investors can get an abnormally high rate of return on their money, even if they finance, due to a strong and rising rental market.  Move up buyers can buy a larger or better home at a price that that has been “discounted” to a greater extent than  the value decline in their current home. Lastly, vacation buyer can get a super deal on that coveted beach, mountain or retirement home.

All these factors apply to non-distressed property but not to the same extent. For example, if you buy a foreclosed home from Fannie Mae you will get a good rate, a discounted price, no mortgage insurance, no appraisal, help with closing costs,  and may qualify of repair funds as well.  If you buy a non distressed property you will only get a good price and a good rate. But you may be able to negotiate some closing help from the seller.

What does it take to qualify for a mortgage today?  Three things are essential:  credit scores generally over 620, a steady job, no serious blemishes on your credit history, and a down payment equal to at least 3% of the purchase price.  Investors and vacation home buyers will need at least 20% down and a strong financial statement.  

Contact the writer below if you need additional information.

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