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Residential Housing Update – Talking with the Expert

Catching up on the residential housing market with renowned Frederick County real estate appraiser A. Wayne Six, President of Six & Associates, Inc.

Frederick County Maryland Housing Statistics Sept 2005 June 2011Rocky Mackintosh spoke with Wayne on Tuesday, August 23, 2011 to discuss recent local housing statistics published on the real estate website

Rocky: Local stats in housing sales show the average house resale price in Maryland is $235,000.  In Frederick County, it is $231,000; Montgomery is $371,000, and Washington County is showing $143,000.

Wayne: That sounds about right.  What was it last year – about 7% higher?

Rocky: That’s right – 7.4% drop over one year ago.  Last year in August the average price in Frederick County was $241,000.

Wayne: There you go.

Rocky:  Charted statistics show a bit of a downward slope in 2006/2007…then a deep steady diagonal drop.

Wayne: Prices are dropping for sure, but also, more of the low priced stuff is selling than the higher prices. Before you had 50% high priced houses and 50% low priced houses. Now it’s 70% low priced houses and only 30% high priced houses.  So that pulls the average number down even more.

Rocky:  What do you see in the foreclosure market?  How is that impacting values?

Wayne:  The percentage of foreclosures is not nearly as high as it had been.  There for a while, foreclosures were making up almost 50% of the market.  Right now, I would say that 35% of closed transactions are from foreclosures and short sales.

Rocky:  Are the lenders moving away from foreclosures as a means of ridding themselves of nonperforming loans?

Wayne:  Yes, instead of foreclosing, they tend to be doing more short sales.  Apparently, banks are learning they are better off with a short sale than actually taking the property foreclose.  It’s cheaper – it ends up costing less to do a short sale than taking a property through foreclosure.  I am doing a lot of short sale appraisals.

Rocky:  I’ll bet.  But you know 35 % is still a big chunk of the market.

Wayne:  Yes, 35%, but it was 50%

Rocky:  With a continuation of falling prices, is the volume of sales strong?

Wayne:  It’s been pretty descent compared to previous years, yes.

Rocky:  From what I see, it looks like the average prices are starting to level off a little.  If you go back to March of this year, the average price was $233,000, and now the average price is $231,000.  So it looks like that as percentage of foreclosures and short sales have dropped from 50% down to 35% in the earlier part of this year, the market is leveling off a bit.

Wayne:   There’s not doubt about it.

Rocky:  While the percentages are dropping, I imagine that some projects have been hit really hard.

Wayne:  Well, yes, the foreclosures and short sales in some neighborhoods are so bad that prices have really fallen down.  Because the banks are faced with so many foreclosures and short sales, they just want to unload, so they price cheaply.  That pulls everyone else’s price down, too.  Look at a neighborhood like Adamstown Commons.  Down there, that neighborhood has a ton of foreclosures.  Many neighborhoods that that one opened at the peak of the market in 2005/2006.  For example in Clover Ridge people paid like $600,000, now they’re selling for $375,000; so the whole neighborhood is upside down.  Neighborhoods like that are really getting crushed.

Rocky:  So when do you see things sort of leveling out?

Wayne:  I think the lower end of the market has almost leveled out.  We’ve entered what I call a “split market.” This is where houses under like $200,000 and under are flat; $200,000 – $400,000 has flatted down just a little bit; and houses over $400,000, prices are dropping at a faster percentage   We’ve seen split markets before…this is the third cycle I’ve seen.

Rocky:  Can a split market be an indicator of sorts?

Wayne: Yes, a split market is good,  as it indicates a near end of a down market.   One thing that people fail to realize is that there are three types of markets:  a down market, a flat market, and then an up market … Then it goes flat again before it falls.

Rocky:  So between the ups and downs, the flat market sets the stage?

Wayne:  Yep!  It’s convenient for people to forget the flat market.  Our last flat market was 1992 to 1997.  That market was 5 years of flat before things gradually began to come back.  There’s nothing you can do.  At least with the flat market, things are not going down.  And prices have been going down since June ‘05, so it’s been 6 years.

Rocky:  I really appreciate your time.  It appears that we should all look forward to flatness as an indicator of better days ahead.

Wayne:  Okay, great! Well, thank you, Rocky

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes

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