REOs Spark Concerns With Market Recovery
OCEAN CITY •€' Recovery oftentimes takes a long time, but some say that although the real estate market is undeniably showing signs of life again, it may never reach the heights that it did just a few years ago.
It didn't seem that long ago that real estate in Worcester County was booming, as were property values and tax revenues. Developers and construction workers were working at an all-time high, people had their pick of jobs, and local businesses profited from the trickledown business from developers and realtors which enabled them to stay open long into the off season. During those so-called glory days, it seemed everyone had their hand in real estate in one way or another or at least benefited from it.
Then the bubble burst.
Yet, in the aftermath of the proverbial bottom dropping out and people turning their attention to saving their homes rather than financing for a second one, some industry insiders are concerned the area is at risk of long-term property value loss as the word foreclosure becomes a household term.
Of course, foreclosure has become almost a dirty word that can strike fear into any working class family in America, and unfortunately, has become a reality for millions of people in this country.
Locally however, Worcester County is below both the state and national average for foreclosure properties, but, according to Robert Smith, supervisor of Worcester County Assessments, there is reason to be concerned on both the short term and the long term, as far as what your house is potentially worth.
'Foreclosures aren't the driving force yet when it comes to what properties are being assessed at, but it could very possibly end up that way if things don't improve,' said Smith. 'Right now, foreclosures are looked at, but not factored into the equation when we are assessing a property, but that could change if numbers continue to rise.'
To date in 2010, 22 of the 113 condominiums (excluding new construction) that have been sold so far are foreclosed properties.
In Ocean Pines of the 25 single-family homes that have sold this year, five were foreclosures.
Smith says that buyers are in some cases, opting to drive the price down during negotiations based on the foreclosure or short sale properties in the neighborhood or area. He says that even though real estate numbers are starting to pick up, the price that properties are being sold for will have long-term effects on future assessments and tax revenues.
'We've seen a $2 billion dollar drop over the last year in assessments, and it's not over yet,' said Smith. 'The number of sales might be up, but the prices per sale are down, and that's is obviously going to effect how much local governments are bringing in for property tax revenues, and what people's assessments are going to be next fall.'
Smith said that he's not sure where the market is going to be the next time properties are assessed, but he said that he's noticed an interesting trend recently.
'It's a strange scenario, really, because newer properties are selling for lower than assessed value, and older properties are selling for higher than what was last assessed,' said Smith.
Smith says that the potential effects of declining property values will be 'devastating' to property tax revenues if foreclosures continue to rise and adversely affect the market. He also noted his concern for the region's seasonal and transient demographic, hinting that foreclosures and short sales could drive the prices down even further.
'In Ocean City, 91 percent of the properties are non-owner occupied, and in Worcester County that same figure is 78 percent,' said Smith. 'So that means that only 16,000 of the homes in the county are primary residences, whereas in pretty much every other county in the state, the percentage of owner occupied residences is about 80 percent. That factor alone could put us in harm's way.'
Mayor Rick Meehan, a realtor in Ocean City, said that he's seen many ebbs and flows in his 20 plus years of working and living in Ocean City, and he says that the market will pick up eventually.
'Unfortunately, values are continuing to decrease and the number of foreclosures and short sales are adversely affecting the market as it causes prices to drop, and that ends up impacting everyone, from property owners, buyers, and, of course, from a governmental standpoint, it has huge tax revenue ramifications,' said Meehan. 'However, everything goes in cycles and we are at the low point of a cycle. Prices are going to go up again. Maybe not in six month,s but I think we might see it happen in the next year or so.'
City Manager Dennis Dare has conceded that he is greatly concerned for the next round of property assessments, and he says he doesn't forecast the next three-year cycle of assessments to be any better than the last one.
'It's like dominos,' said Dare. 'These foreclosure properties drive down the price because the banks want to move the product. Property tax is 58 percent of our income in municipal government, and if prices keep going down, that means less money brought in, and that is going to effect the services that we can provide to the people of Ocean City.'
For example, a condo in Ocean City recently sold for $284,900 and was most recently assessed in 2008 at $421,500. In 2005, that same property was sold at $516,000. A recently sold West Ocean City single-family home sold for $537,799 after being listed for just $455,400. By comparison, that same home assessed for $904,530 in 2008 and was purchased in 2006 for $975,000.
Joy Snyder, associate broker for Prudential Carruthers in Ocean City, says that the general consensus is that real estate inventory is stressed, but she argues that isn't necessarily the case.
'Many of the clients that I deal with have no interest in foreclosure properties because the state of Maryland has an exempt from disclosure law, which means that they don't tell you anything about the condition of the foreclosure property they would be buying,' said Snyder. 'The highest decrease in assessments that I have seen is 48% but the average is more like 30%. Listing agents are trying to set the right prices to move the homes at market value, but in the case of an REO foreclosure, they oftentimes set the price based on a Broker Price Opinion. Even as the market starts to pick up, foreclosures and the effects of foreclosures on the market is like a boil looming in the background for every realtor. You just wonder when it's going to pop.'
There are some optimists who believe that although the price of real estate and the tax revenue that comes along with it may never get back to the astronomical price points of five years ago, people will always want to buy property in Worcester County, pointing to that old clichÃ© of 'location, location, location.'
'Just like we are rightsizing the government, the real estate industry is having itself right sized from a price standpoint,' said Councilman and local realtor Jim Hall. 'The prices shot up like a rocket during the boom and now they are probably getting back to where they should be. But we've seen this all before, and the market will be fine. If you have to sell two units at $500,000 each rather than one for a million dollars, well, it makes no difference to me.'