By Jamie Smith Hopkins
Regional Spotlight—(MCT)—Andrew Wells is hoping to buy a Baltimore home for around the cost of an old car: Less than $10,000.
Turns out he’s in good company.
One of every 10 city homes sold during the first half of the year , about 275 in all, fell in that price range. Twice as many sold for under $20,000.
Often foreclosures, these properties are usually in bad shape but seem like deals to real estate investors and the occasional hopeful owner-occupier, such as Wells.
“I don’t have to worry about trying to get a loan,” says Wells, 40, a bill-processing technician who works in Annapolis. “That was the purpose of me searching in that price range. I could buy something, pay cash, and I could live in it and renovate at the same time.”
Almost exclusively a city phenomenon—very few homes in Baltimore’s suburbs sold for less than $10,000—it’s a market that has expanded rapidly. More city homes sold for less than $10,000 between January and June than in all of 2009 and 2010 combined. Dozens of city neighborhoods had at least one such sale this year.
As very cheap homes change hands, average sale prices in Baltimore have plummeted. Seventy city neighborhoods saw average prices drop more than 20 percent versus a year ago, according to a Baltimore Sun analysis of data from Metropolitan Regional Information Systems. That’s half of the neighborhoods with enough sales to allow for comparison.
Fewer than 10 percent of suburban communities around Baltimore experienced an average price decline that large. Prices in the region dropped six percent on average.
But with the city’s faster-falling prices have come more buyers. Sales rose in more than half of the city’s neighborhoods compared with the first six months of last year. Sales rose in fewer than 40 percent of suburban communities.
Still, both the city and suburbs have areas where sales are down sharply since the federal tax credit of up to $8,000 for first-time homebuyers expired last summer. The number of homes sold during the first half of this year fell more than 20 percent in one of every five city neighborhoods and suburban ZIP codes, according to the Sun analysis.
Six years since the peak of the housing bubble, the Baltimore region doesn’t look as if it has recovered from the slide that followed.
The number of homes sold in the first half of the year is down nearly 50 percent from the level in the first half of 2005. Prices still are dropping in most communities. And at least some of the places where prices rose on average this year are actually seeing values fall , but buyers are using their greater purchasing power to get better homes, pushing the average upward.
Mortgage insurer PMI Group thinks the odds are against a turnaround on prices in the near term, considering the rates of unemployment and foreclosure. The firm calculated a nearly 70 percent chance that prices in the Baltimore area will be lower in early 2013 than they were at the beginning of this year.
David Berson, PMI’s chief economist, says the weak job market has weighed on prospective buyers. He said a sustained pickup in hiring would give more people the ability, and confidence , to buy.
With more buyers would come more support for prices.
“One of the reasons we’re seeing fewer transactions now is people are waiting for a bottom in prices,” Berson adds. “A lot of people probably would buy today, but they don’t want to buy a depreciating asset.”
The Sun’s housing-market analysis includes city neighborhoods and ZIP codes in the region with at least five home sales between January and June last year and again this year. Rockville-based Metropolitan Regional Information Systems, which runs the multiple-listing service used to buy and sell homes in the area, provided the database of transactions.
As sales of ultra-cheap homes multiplied this year, the ultra-pricey end of the market was also showing a bit more life. Three homes, all in Annapolis , sold for more than $4 million each in the first half of the year, up from one in the region during all of last year.
But inexpensive is outnumbering expensive by a large margin. For every home that sold for more than $1 million in the region, 22 sold for less than $100,000.
The cheapest sale, a home on Payson Street in Southwest Baltimore , changed hands between real estate investors for just $10 in February. An attorney drafting the land record, realizing the number would look like a mistake, wrote that the amount “is the actual consideration, the property being in bad condition.” The annual ground rent on the property is nearly eight times the purchase price.
A low-low price isn’t always a good deal. The seller of the Payson Street home bought it for $353 a few years ago.
John Mitnick, whose Baltimore law firm handled the $10 transaction, notes, “There are lots of property owners in Baltimore City that just want to get rid of properties.”
Count banks in that category. Nearly 40 percent of city home sales in the first seven months of the year were foreclosures, according to a Greater Baltimore Board of Realtors analysis.
Foreclosures aren’t as large a part of the suburban housing market, but they’re not a small part, either. They accounted for about 20 percent of sales in every county around Baltimore except affluent Howard, where they were 10 percent.
And as other homes languish in foreclosure limbo, empty but not yet on the market, they’re causing problems for neighbors.
James Reichlin says the foreclosure directly across the street, with its overgrown grass, broken front window and overall state of disrepair, has not helped him sell his Ellicott City home. To make matters worse, the homes on either side of the foreclosure are also empty and in poor condition.
What the insurance-claims investigator has going for him, besides the stone house he spent years restoring, is a location in a well-regarded school district a short walk from the shops on Ellicott City’s historic Main Street.
He found buyers who appreciated that, and the deal is scheduled to close. But he knows from real estate agents’ feedback that some prospective buyers couldn’t get past the unwelcome neighbors.
“Nine times out of 10, they would leave comments like, ‘House shows well, had concerns about … the surrounding properties,’” Reichlin says.
In Baltimore, the big number of foreclosure sales helps explain the low prices.
Darley Park, a tiny neighborhood, is home to nearly 100 properties tagged as vacant by the city. Of its 15 home sales in the first half of the year, the least expensive changed hands for $3,960. The most expensive was all of $14,000. Prices plummeted 70 percent on average from a year earlier.
A dozen neighborhoods sprinkled around the city didn’t have a home sale higher than $30,000. Average: around $10,000.
At those prices, “I guarantee you’re going to be buying it with cash because the bank does not want to play games with someone who needs financing,” says Jonathan Benya, a real estate agent who works on foreclosure transactions across the state.
“The bank is much happier to just cut their losses and sell it to somebody who can buy it within 14 days.”
John Kantorski, a real estate agent in Lutherville, says homes in the lowest price range usually have one thing in common.
“They’re terrible inside. They need full, full rehab work in one way or another,” he says. “Usually there’s no kitchen, or no walls.”
Some have been empty for years. Mold is frequently a problem.
That’s why the buyers are largely real estate investors. Some are just looking to flip to other investors. Some intend to fix the properties up themselves, either as a rental—rents are on the rise—or to sell to people looking for a home ready to move into.
Alberic “Al” Agodio, whose Bethesda-based AORE Investments Inc. rehabs homes in Baltimore, said the shells going for $10,000 today were selling for $30,000 or $40,000 several years ago.
There’s a ripple effect. After a complete rehabilitation, these homes would have sold for $150,000 or so a few years ago, he estimates. He says he’s now pricing homes for around $80,000.
“It’s a better deal for everybody,” Agodio says.
But the competition for cheap places in not-so-awful condition can be fierce. At least, that’s what Wells, the bill-processing tech, has found. He wants a home he can live in while he fixes it up, and he’s been outbid three or four times already after submitting offers in the $3,000 to $5,000 range.
On other occasions, he discovered when he tried to make an offer that the bank wasn’t ready to sell, even though it had put the home on the market.
“It’s been a roller coaster. Very frustrating,” says Wells, who lives in Washington.
He figures he’s seen more than 50 homes. Some struck him as diamonds in the rough. Plenty of others weren’t habitable or sat on eerie “ghost” blocks full of vacants. He gave up looking for a while just to give himself a break. Now he says he’s restarting his search.
If it works out as he’s hoping, he’ll get a home that, post-purchase renovation included, won’t cost him more than $35,000.
“That’s a project I want to take on,” Wells says. “The end result is, it would be all my work, how I want it.”
Distributed by MCT Information Services
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