Real Estate: Local trends the most important to your transaction

In past columns, we've said that all real estate is local, so you should be aware of local market conditions, rather than let yourself be led by national trends. In this column, we'll show you why.

What you see on the national evening news might not reflect what's happening down the block. We don't pretend to suggest that everything's rosy right here in river city. But, for the local buyer or seller of real estate, we're doing a lot better than the national averages.

No doubt, we'll get caught in the down draft of what's going on in a sour real estate market, and the economy as a whole. Consumer confidence has been so badly shaken that perception and fear of the future can often replace reality.

So, how do we stack up against the rest of the country? Knowing the facts of our local economy might suggest a different outlook, as you evaluate the buying or selling of real estate.

Broadly speaking, when real estate in the rest of the country goes down, we go flat. When we talk about the rest of the country, we're really talking about very localized pockets of market softness.

Generally, real estate markets that have severely depressed economies or systemic unemployment are experiencing the biggest downturn in home prices. Across the nation, this would include most major metropolitan areas (big cities) and regions that are heavily dependent on an individual industry, places like the American auto companies in Michigan. Moreover, excessive speculation by investors, in certain markets has also had an impact on home prices. But, as we saw with oil and the price of gas, speculators can drive things down just as fast as they drive them up. Despite this, the two biggest drivers of the real estate market are employment and mortgage interest rates. On those measures, our local area is equal to, or in better shape than, many other parts of the nation.

From the perspective of jobs, consider unemployment numbers. As of September 2008, the unemployment rate in Baltimore City was 7.1 percent; nationally, it was 6 percent; but, in Anne Arundel County, it was only 4 percent. Most economists would consider 4 percent to be "full employment," in that there is a natural level of unemployment as people transition from one job to another. Without any doubt, these unemployment figures will rise during the upcoming months. Nevertheless, Anne Arundel County, and many of the surrounding areas, will likely stay well below the national averages. The primary reason for this is that government is a significant employer in our community. In good times, the government grows, and in bad times, the government grows.

In many ways, the biggest employer for this area is a recession proof industry. Of the top ten employers in Anne Arundel County, 84 percent are Government jobs. Fort Meade alone, employees 40,000 people. The next biggest "private" employer is Southwest Airlines, with just 2,572 employees. More locally in Annapolis, these figures don't include state government, which would obviously skew these numbers even more toward government jobs.

Regarding mortgage interest rates, the national average for 30-year fixed mortgage interest rates is currently fairly stable, and actually at historic lows. Although qualifying for a loan has become more stringent, home buyers in good standing will not see mortgage rates as a significant barrier to buying a home. But, more than ever, clean credit is the key to securing a home loan at reasonable rates. If you're thinking about buying a home, get with a mortgage banker to understand how your credit score will affect your ability to buy.

Your income is only one part of the equation. These days, a bad credit score, regardless of your income, can mean a significantly higher interest rate, or no loan at all. If you're credit score is low because of a past problem, there are ways to clean it up. Just waiting for time to pass might not do the trick. A mortgage banker can help direct you toward methods to expunge erroneous information on your credit report and help minimize deterrents to a good credit score.

Does this all mean that we're going to skate through this recession, without home prices being affected? Absolutely not. As we said, perception becomes reality. Although Maryland has the highest median household income of any state in the nation, we also have some of the highest home prices. So, it's all relative. Just as a rising tide lifts all boats, one that's going out will also bring them all down. As a result, we will be affected by a negative national economy. But, on the bright side, know that all real estate is local, and our market is likely to do much better than others around the country.

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