Annapolis Maryland Luxury Real Estate

When things go wrong we sometimes look to blame someone else. When things go wrong for a company, it sometimes blames the government. But it's often the government that has to bale us out - take the mortgage meltdown we experienced last year. Perhaps this was the trigger that started the cascade of events leading to our current economic recession.

There are certain negative forces at work in the mortgage market, not all of which can be blamed on our government. Many banks are over extended with loans that are now less desirable than they were 12, 24, 36 months ago when they were originated. Perhaps they were anxious to please shareholders, avoid accusations of redlining, or any number of a dozen other reasons.

Those banks that made prudent lending decisions are more likely to be in better shape now than those that went out on a limb originated mortgages waiving sound loan-to-value ratios (for example 100% and 125% mortgages) and offering products like interest-only adjustable rate mortgages to borrowers and qualifying them on the lower monthly payment without consideration to future rate adjustments and income-to-debt ratios after the adjustment. This practice by some banks may have put borrowers in a position where they simply will not be able to afford the mortgage product when the rate increases.

Many prudent borrowers and lenders understood the risks and the rewards of these products. But many consumers did not and their lenders didn't clearly explain the risks to them - the risk should interest rates rise suddenly and sharply, the borrower might not be able to make the payment. It's almost as if the banks unintentionally set up these consumers for failure, default and foreclosure. As a result they set themselves up for increases in mortgage losses.

I'm not sure what it's going to take to turn this all around. Banks will need to return to making good lending decisions by tightening mortgage loan guidelines. Borrowers are going to have to buy lower priced homes using more conservative mortgage products - especially marginal borrowers who will need to just say no to interest only adjustable rates mortgages!!!

Like the S&L crisis of the 1980s and 1990s where more than 1,000 savings and loan institutions (S&Ls) failed resulting in a costly venture estimated at around $160-plus billion of which $125 billion was paid for directly by the U.S. Government. This resulted in a large budget deficit in the early 1990s - which we all paid for. The slowdown in the real estate market may have been the cause of the 1990-1991 recession. Between 1986 and 1991, new construction dropped 800,000 units to 1 million units per year, a historical low. Does this sound familiar? If not, perhaps it should.

The Wall Street Journal reported on January 17, 2008 that housing starts decreased 14% to a seasonally adjusted 1.006 million annual rate. The level of 1.006 million was the lowest since 996,000 in May 1991. The mortgage industry has been in melt-down mode for nearly a year. As stable economic conditions regress to recession (someday to be called the 2007-2008 recession), The President's agenda for tax relief is too little and too late. The 2008 Presidential candidates are too busy battling each other so their solution to our situation is not clear.

Are there parallels we can draw with the S&L crisis of the 1980s? Will the U.S. Government need to step in with a mortgage bail-out package? Will the government, the banks, the borrowers be able to halt our economic spiral downward? What would Alan Greenspan say about our current situation? Tune-in next week for the next episode to learn the answers to these and other important questions!!!

Are we already in a recession? The news commentators, politicians, and economic pundits won't say so until after the fact. News about the upcoming 2008 election continues to eclipse most news including economic news. A recession, no matter how weak or strong, is not likely to be openly discussed until the Democratic and Republican candidates are chosen. Home prices may trend downward. Homes will still sell but prices will be softer. Sellers that can price competitively and below direct and indirect competition should get their homes sold first and the quickest. January, February and March are often slow months and sales can be slow. Recent warm weather may encourage buyers to continue looking rather than hibernate. In commodity driven real estate markets, pricing is everything. Supply and demand economic principles rule. However, buying a home is a complex process and emotional investment and can never be effectively commoditized. We should remain optimistic about the overall real estate market and expect improving conditions throughout the year.

Inventory levels fell again last month for the third month in a row to 3,876 active listings in Anne Arundel County at the end of December 2007 - down from the peak in September when there were 4,646 active units on the market. The average sold price slipped 4.7% in December and was down 3.9% from this time last year. Total volume was up 10.4% from November and off 18.6% from last year. The average list price to sold price ratio was 91.6% last month.

There were 401 units sold in Anne Arundel County in December 2007, up from the 346 units sold in November. The number of active listings was 3,876 in December, down from 4,243 in November. The number of new listings taken in December was 454, down from 730 in November. The average sold price was $395,990 in December, down from $415,771 in November. The average list price was $432,411 in December, down from $461,138 in November. The average number of days on market was 122 in December, up from 120 in November. The average list price to sold price ratio was 91.6% in December, down from 97.6% in November. Total volume for December was $158,792,028, up from $143,856,708 in November.

There were 57 units sold in Annapolis in December 2007, down from 61 units sold November. The number of active listings was was 735 in December, down from 883 in November. The number of new listings taken in December was 64, down from 143 in November. The average sold price was $591,643 in December, up from $561,546 in November. The average list price was $615,140 in December, up from $606,151 in November. The average number of days on market was 151 in December, about the same as 150 in November. The average list price to sold price ratio was 96.2% in December, up from 94.9% in November. Total volume in December was $33,723,666 in December, down slightly from $34,254,306 in November.

According to Bankrate.com, the average national rate for 30-year fixed rate mortgages is at 5.5%, down from 5.8% reported this time last month. The National Average Composite Mortgage Rate is 6.6% for December, up from 6.4% as reported for November.

According to RealtyTrac.com, the number of pre-foreclosures in Anne Arundel County was 116 in December, down from 172 in November. The number of auction properties in the county was 312 in December, down from 393 in November. And, the number of bank owned properties was 154 in December, down from 167 in November.

So what can we expect for first quarter 2008? Sales are likely to remain slow as our attention is on the 2008 election. Inventory levels may decline while sellers wait until March or April to come to market. Prices are likely to trend down if sellers become impatient and make deals to get their homes sold before spring. Sellers should expect to be on the market for six to eight months. Buyers have many choices in all price ranges. Sellers should take competition seriously and should price below any direct competition. Where there are only a few buyers, sellers who want their homes sold now must get the serious buyers to look at their home FIRST! Lowest price, best condition, favorable terms will result in a faster sale.

While no one can predict the future with any certainty, one thing is certain - it remains a buyer's market. Buyers have large numbers of desirable properties from which to choose and sellers have lots of competition. A firm understanding of the market trends and forces is necessary for making the best real estate decisions. So, if you are serious about buying or selling a home in today's real estate market, contact Stephen Howell, Associate Broker, REALTOR^®, Coldwell Banker Residential Brokerage, at 410-923-3217.