Home sales level down

The housing market in the region is coming off the frenzy of a record '05, becoming more normal

By June Arney

sun reporter

A regional housing market that inflated to record levels in 2005 ended the year leaking a little air.

The frenzy of homebuyers willing to outbid each other to get into a new home became a rarer phenomenon, yielding to more stable sales prices, more leisurely shopping and nearly twice as many homes on the market as there were a year earlier.

The experts say the journey from overheated to a more normal market probably began around September, although it wasn't clear at the time. So while Realtors generally predict another year of healthy sales in the Baltimore region, most agree there is an unmistakable hiss in the market.

"Everyone thinks that the bubble is going to burst, and it's not ready to burst," said Katie Grove, a Realtor with Coldwell Banker in Owings Mills and president of the Greater Baltimore Board of Realtors. "You may have a little bit of air seeping out, but it's not ready to burst. There are still good interest rates, lots of houses to choose from, and sellers are still getting their prices."

The average sales price of a home in the region in December was $306,539, down slightly from $309,291 a month earlier but 20 percent higher than in the corresponding period in 2004, according to statistics released yesterday by Metropolitan Regional Information Systems Inc., a Rockville company that tracks homes sold through the multiple-listing service.

While prices held fairly steady, few sellers saw multiple offers on their homes, except in neighborhoods where there was high demand and limited inventory. The number of homes sold fell in every jurisdiction compared with December 2004, with the biggest decline in Anne Arundel County, down nearly 23 percent.

The number of homes listed for sale in the area nearly doubled last month from a year earlier and sellers, on average, got 95.9 percent of their asking price, more than a percentage point less than they received a year earlier.

"It may not be frenetic and insane, but it's steady and healthier," said Julie Cahan, a Realtor in the Cross Keys office of Coldwell Banker at Roland Park.

Yesterday, the National Association of Realtors predicted that the 2006 housing market nationally will be brisk by historical standards but displaying a more normal rate of growth.

Sales are expected to slow by 4.4 percent to 6.79 million from 2005's projected 7.1 million - still the second highest ever recorded, the Realtors' group said.

In Maryland, reading the future of the housing market is complicated by strong job growth and demand for housing on one hand, and the impact of enormous price appreciation on the other. Housing affordability in Maryland has fallen 28 percent since mid-2003, compared with 13 percent for the nation, according to a report yesterday by the Federal Deposit Insurance Corp. Home price appreciation in Maryland was fifth highest in the nation during the third quarter, the report said.

"It's pretty clear that housing is slowing," said Celia Chen, director of housing economics for Economy.com in West Chester, Pa. "Rising mortgage rates and the very fast rising homes prices are constraining home buying. Homes are still considered affordable, but not as much so as a year ago."

Locally, for the next few months, the market is going to be slower than for the last two years, said Pat Hiban, broker of the Pat Hiban Real Estate Group in Howard County. But he thinks it will pick up starting with a spring market that hits earlier than usual, maybe as soon as next month.

Economist Anirban Basu believes that 2005 will prove to be the peak year for this housing cycle. Across the region, 44,765 homes sold in 2005, compared with 42,734 in 2004, the MRIS data show.

"In 2006, we will not set a record in terms of home sales," said Basu, chief executive of the Sage Policy Group Inc. "I think the best that homeowners can hope for from a regionwide perspective is for gains in home prices in the single digits. There is evidence both regionally and nationally that the housing market is slowing substantially, and the fact that mortgage rates are edging higher only adds fuel to that fire."

He added that 2006 "may usher in a period of actually falling home prices by 2007 - that's possible certainly in real terms."

Even with the slowdown, Cahan, of Coldwell Banker, said she has six to eight buyers ready to go as soon as they find the right house.

She put a rehabbed Victorian in Mount Washington on the market after Thanksgiving, and it was under contract within four days - for more than the asking price. It's expected to close this month.

The house, at 2202 Chilham Road, was listed for $592,500 on Dec. 2. By Dec. 6, two offers had come in. The owners accepted one for more than $5,000 over the asking price, Cahan said.

But she also sees a change in behavior since the summer, when many buyers would pay almost any price to get into particular neighborhoods. "I think people are becoming more price conscious," she said. "I think they're not willing to go to prices that they consider unreasonable."

Ann Roemer and her husband, Ron, put their Kingsville home on the market in late October. But their experience has been quite the opposite of the homeowners of the Baltimore Victorian rehab who received two offers in two days.

One couple has seen the house, Ann Roemer said. They dropped the price before Thanksgiving from $595,000 to $575,000 on the 3,000-square-foot home surrounded by woods on three sides. On 2 1/2 acres, the house has a glass sun porch and an above-ground pool, surrounded by a deck.

"The Realtor said there was still plenty of time before the holidays: 'It will go fast,'" Roemer said. "But, it was just like a switch turned off in this particular price range. Some of the homes in this area I've seen on the market since July, so I feel like I'm in good company."

A month after putting that house on the market, the couple closed on their new $400,000 home in a new active-adult community in Bel Air. They didn't want to lose out on that community by delaying the purchase. So they have two mortgages and two sets of utility bills.

Roemer, 58, is optimistic sales will pick up. She's seen more people driving by looking at the house.

"Interest rates are still at a bargain," she said. "When my husband and I built this house, we paid 14 1/2 percent. It's bargain basement levels right now."

Soothing Bubble Fears...Again

by Broderick Perkins

Federal Reserve Chairman Alan Greenspan attempted again last week to soothe fears of a nationwide housing market collapse even as some legislators took the Chicken Little approach to home buying.

"I think we're running into certain problems in certain localized areas. We do have characteristics of bubbles in certain areas, but not, as best I can judge, nationwide," Greenspan told the House Financial Services Committee.

"I don't expect that we will run into anything resembling a collapsing bubble. I do believe that it is conceivable we will get some reduction in overall prices, as we've had in the past, but that is not a particular problem," the Fed chairman added.

Greenspan was responding to the fears of Rep. Scott Garrett (R-New Jersey) who complained that his plans to buy a Washington, D.C. home will be scuttled by a sudden deflation in home prices in the D.C. area.

"The bubble is about to burst as soon as I buy my house down here," Garrett complained to the Fed chairman.

The nation's capital is one of a dozen of East and West Coast urban areas which economists say are most susceptible to a so-called housing market bubble that could suddenly pop and send prices plummeting.

Few expect a nationwide collapse of the housing market and even where there have been skyrocketing prices, price flattening, rather than fast deflation, is a greater possibility.

"More likely, prices would stop rising and allow valuations to catch-up," said Barker French, chief investment strategist of Brinker Capital, a King of Prussia, PA-based investment consulting firm.

"The fear of a housing collapse is overblown. There are pockets of excessive valuations, mostly on the east and west coasts. It is highly unlikely that house prices across the US would fall in unison," French said in the company's forecast for the 2005 economy.

On the other coast, Michael Carney, a real estate economist with the Real Estate Research Council at California State Polytechnic University-Pomona, was even more adamant.

"People who talk about a bubble are blowing smoke,'' he said.

Carney said even another full percentage point or two rise in interest rates may only slow the rise of housing prices in the Golden State.

The continued influx of immigrants, move-up buyers, and the growing second home market in a state where the housing inventory is more than 200,000 homes short, has already begun to move the boom inland to the lesser developed Central and Imperial Valleys where homes are cheaper.

"I don't see anything to stop them,'' Carney said.

French also said delinquency rates for residential real estate, as a percentage of total bank loans, has been falling since 1990. In 1990 3.2 percent of real estate loans were in default. Between 1995 and 2003 the percentage floated in the 2 percent to 2.4 percent range. During 2004, the percentage of loans delinquent fell to 1.6 percent.

Greenspan said homeowners have accumulated considerable wealth because of the rapid run-up in the value of their homes in recent years, and many have been tapping into that wealth through home sales, cash-out refinancings and home-equity loans -- in some cases to see them through hard times, including lingering unemployment.

The Fed estimates that home values have doubled from $8 trillion to $16 trillion since 1996, out pacing the rapid growth of mortgage debt, which also has doubled from $3.5 trillion to $7 trillion in that time.

Most homeowners are not mortgaged to the hilt because they purchased homes with 20 percent down, giving them a cushion against all but a major housing market crash.

Greenspan said even those home owners with 100-percent financing have had such a rapid gain in value that they too are sandbagged against a flood of price declines.

"Remember that there's a very significant buffer in home equities at this stage," Greenspan said, referring to the $9 trillion difference between values and outstanding home loan debt.

Greenspan did concede the more likely scenario, a drop in home values anywhere would likely be followed by a drop in consumer spending and a resultant impact on the local or overall economy. Consumer spending is what drives the economy and much of it today is driven by the "wealth effect" of risking home values.

"Some reversal in that wealth is not out of the question. If that were to occur, households would probably perceive the need to save more out of current income; the personal saving rate would accordingly rise, and consumer spending would slow," Greenspan said.

Baltimore Housing Market

After the October cool-down in the Baltimore housing market, skeptics question if the market will drop again between Thanksgiving and NewYear's Day.

"People who have to relocate do; anyone who can put it off does," said Bill Love, a Timonium-based Coldwell Banker agent

Local real estate agents agreed that sales drop off every year around the holidays. Love tells his customers who are trying to sell their houses not to expect any activity from Dec. 10 to Jan. 7.

While interest rates have gone up, Love said the rates are still around 6.5 percent. He does not see interest rates as a hindrance for buyers next year. Love expects rates to go up somewhat next year but predicts they will stay below 7 percent. He said the market has been seller-oriented for about three years. Now sellers will have to be educated why houses stay on the market longer and buyers will have more room to negotiate. "The momentum is swinging toward the buyer," Love said.

Jamie Mason, a Long & Foster agent in Fells Point, said the rising interest rates have customers scrambling to lock in mortgages before interest rates go any higher. Mason said interest rates are higher than a year ago but still historically low.

Mason said the market is poised for a correction because buyers believe houses are worth less than sellers think they are worth. "It's the old law of supply and demand," she said.

Not true, according to Creig Northrop, a Long & Foster agent in Howard County. Northrop said the local buying market slows during the holiday season but many people are looking for houses because their businesses are relocating. He does not believe the area is experiencing a housing bubble. "It's not a bubble. It's called growth," Northrop said. Northrop said as the Baltimore-Washington corridor grows, the real estate market will follow suit. He said houses will not always fly off the market, sometimes the growth is slower. But houses that are priced reasonably are still selling, Northrop pointed out. He said the market had more activity per property last year because values are approximately 10 percent higher this year. When that happens, there will be less activity per property, Northrop said. While tree-trimming has outpaced bidding wars for the winter, Northrop is confident the housing craze will pick up in the spring. He said you need more buyers and lookers to create a sense of urgency. The shoppers don't come out until the spring, he said.

Mason expects a positive January and February if interest rates stay relatively steady and the weather stays mild. At the peak of the selling season this year, houses stayed on the market an average of 14 to 15 days. Right now, houses are averaging one to two months.

According to the Metropolitan Regional Information Systems Inc. real estate trend indicator, 3,616 residential houses were sold in the Baltimore area in October. The average price was $298,000.

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