Democratic Wings: Half of homes for sale are vacant

January 21, 2007

Half of homes for sale are vacant

From Lorraine Mirabella in the Baltimore Sun:

The pileup of vacant homes becomes a factor in market dynamics, putting more pressure on prices and, short-term, prolonging the slump. "The longer homes for sale remain vacant, the more desperate on average become the sellers," said Anirban Basu, an economist who is chairman and chief executive of Sage Policy Group Inc. in Baltimore. "The growing number of vacant homes means more sellers out there are ready to be realistic about the market to drop prices." Steve and Debbie Lombel put their four-bedroom Colonial in Odenton on the market in May, figuring it could take maybe four months to sell a house in the mid-$800,000 range.

"We felt pretty confident," said Debbie Lombel. "It showed well and was a nice house on a nice lot."

But eight months later, the now-empty house is still sitting on the market. The couple and their children have since relocated to temporary quarters in South Carolina for Steve Lombel's job. They have borrowed from their anticipated equity and sale to build a new house. Their agent has held 21 open houses. They've cut their asking price three times and now are offering to pay mortgage loan points to help a buyer get lower interest rates.

Such is life after the housing boom. Sales of homes across the Baltimore region plunged 19.34 percent last year from 2005, and the average price rose just 6 percent after four straight years of double-digit gains. As listings mount, an unprecedented number of unoccupied homes for sale are piling up, creating unexpected headaches for homeowners.

Some with little or no equity in their homes face a tough choice of accepting a loss or taking a risk that eventually a buyer will meet their price. Others are straining to pay two mortgages or are renting while they try to sell their old home. And some have been forced to pull their homes off the market and find tenants.

The number of vacant homes for sale nationally jumped more than 30 percent in the third quarter from a year earlier, to 1.9 million homes, the latest data available from the U.S. Census Bureau show. That's about half of all single-family homes on the market, said Michael Carliner, vice president of economics for the National Association of Home Builders.

More than a third of those - 825,000 - are in the southern region of the United States, which includes Maryland.

"The share of vacant for-sale is unusually high, compared to anytime in history, really," Carliner said. "Over the past few years, total housing production has been beyond what the underlying fundamentals would indicate."

Local real estate agents say the surge in unoccupied homes is apparent across all price brackets in the market.

"A lot of people are calling me concerned; they're carrying two mortgages and that's not fun," said Frank Lanham, a Coldwell Banker real estate agent based in Fells Point. Nearly half his listings are unoccupied houses.

The pileup of vacant homes becomes a factor in market dynamics, putting more pressure on prices and, short-term, prolonging the slump.

"The longer homes for sale remain vacant, the more desperate on average become the sellers," said Anirban Basu, an economist who is chairman and chief executive of Sage Policy Group Inc. in Baltimore. "The growing number of vacant homes means more sellers out there are ready to be realistic about the market to drop prices."

Cycle of desperation
And buyers, sensing weakness, tend to pull back and wait for prices to fall more, he said:

"If buyers are waiting longer, then an increasing number of homes become vacant, which means sellers become desperate and prices fall further. That's where we are in the cycle."

Declining home prices could trigger more defaults on mortgage loans if homeowners struggling with two mortgages are unable to cover the cost of the loan by selling the house, said Celia Chen, director of housing economics for Moody's Economy.com.

But, like bitter medicine, eventually it's "a good thing," Chen said: "It improves affordability, and in the long run, it helps prop up the housing market."

Agents say that vacant homes for sale are often a result of job relocations that force the seller to move before the house can be sold. In some cases, sellers getting corporate relocation help are prohibited from accepting a contingent contract, which can shrink the pool of buyers.

And in other cases, buyers decide to buy before they've sold their house to take advantage of a deal but then have trouble selling a then-unoccupied house, agents said.

"I do have one listing now where the buyers have already purchased a home and moved into it, which is happening more often now," said Lisa Edleman, an agent with Zip Realty. "And I'm showing buying clients more unoccupied homes as well."

In the current market, it has become more common to see vacant houses for sale in neighborhoods all over the city, not just in distressed areas, said Matt Canelos, who buys houses as an investment.

"The market is just not moving the way it was," Canelos said. "To me, a vacant home sometimes signals a more motivated seller, but that's not always the case. ... Sellers are holding their ground to the extent they can hold on a little longer to see what happens."

Maintenance woes
Besides the financial strain of carrying two or even three mortgages simultaneously, sellers who've moved often have to rely on neighbors, relatives or their agent to spruce up and check on the unoccupied house. In the summer the lawn needs mowing; in the winter the pipes require checking, and snow needs to be cleared. Agents often offer sellers of vacant houses names of contractors who specialize in the upkeep of vacant, for-sale houses.

While emptying a house of furniture can make it look less cluttered, it can also work against a sale, agents said. Would-be buyers often can't picture how their furniture would fit in. Homes without furniture, carpeting and drapes can reveal cosmetic, or more serious, flaws. And buyers often sense a level of desperation in the sale of a vacant house, even when a seller is determined to hang on as long as it takes to get the asking price.

"Sellers like the Lombels are between a rock and a hard place," said the couple's agent, Lore Peterson, of Peterson & Tolbert with Coldwell Banker Residential Brokerage. "They're in a situation where they had to move. They're caught in a situation like many sellers where the prospective buyer that's buying and has a piece of property to sell wants to make sure they have an offer on their property first. If the property the prospective buyer is selling isn't moving, the [sellers] are stuck."

Lanham, the Fells Point agent, said some homeowners have resorted to renting on a month-to-month basis, to friends, relatives or someone who needs housing while house-hunting.

"I've had that quite a few times in the past four months, when they know the season is slowing down and they feel, why not put a renter in there," Lanham said.

In other cases, said Peterson, clients who aren't forced to move are trying to outlast the slump.

"The local people who don't have to move are waiting it out, and realizing their house will be on the market a little longer. Eventually, they're getting sold. It's taking a little patience," she said.

Waiting it out led to many sleepless nights for seller Dan O'Connell. O'Connell and his wife, who had decided to downsize, put their house in Bel Air on the market last May. In June they found a house they wanted to buy in Sparks, smaller and closer to O'Connell's job at Towson University. They settled on their new house in July, still without a single offer on their Bel Air house.

"We didn't want to lose the house in Sparks," said O'Connell. "I just never thought it would take this long to sell our house. There was a lot of borrowing from Peter to pay Paul."

The couple moved to their new house in August, hoping that the Bel Air house would have a better chance selling as a vacant home. At the beginning of September, they found a new agent and drastically reduced their price, by $73,000, to $302,000.

"At some point you've got to cut your losses," O'Connell said. "It was costing so much a month to be carrying three mortgages," totaling more than $3,000 monthly, including the old mortgage, the new mortgage and payments on a bridge loan.

The price reduction worked. O'Connell sold his house last month and now feels relieved to have that experience behind him.

"It was extreme anxiety, and I was short-tempered," he said. "It just was hanging over my head constantly. I kept hearing, 'It will sell, it will sell,' but when? The hardest thing was, how low do you go with your price, and at what point do you decide it's costing me money to get a certain price? I had to accept the fact that it's gone to being a buyer's market."

The Lombels feel confident that their latest incentive, offering a buydown on a buyer's interest rate, will bring an offer. Otherwise, they too will have to lower their expectations.

"In February, we would have to re-evaluate and see where things are, and if we would reduce it more or try another incentive," Debbie Lombel said. "We were hoping ideally it would be sold by November, and the new house would be done."

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January 21, 2007