New home sales in metropolitan Baltimore fell 21 percent during the third quarter, compared with the April-to-June period, but were 19 percent better than they were during the third quarter of 1990, according to a new report by Legg Mason Realty Group Inc.
The Legg Mason executive who prepared the report said that the drop reflected continuing economic weakness but that most of the dip was caused by the fact that summer sales have been on average about 16 percent below spring sales during the past three years; in turn, sales during the fourth quarter are traditionally slower than during the third.
"There's economics involved as well as seasonality," said Robert Lefenfeld, a vice president of Legg Mason. "The seasonality will really show up in the fourth quarter."
Mr. Lefenfeld said that homebuilders are responding to the weak sales in part by cutting the size and luxuriousness of some homes, a small, partial reversal of a 20-year industry trend.
"We're seeing introductions of smaller houses on smaller lots," Mr. Lefenfeld said.
He thinks the trend will increase in years to come as middle-income "baby boomers" who can't afford top-of-the-line homes look to move up from town homes they bought as first homes. "The builders are responding to affordability concerns. . . . They're stripping away some of the glitz."
Mr. Lefenfeld said that falling interest rates also helped make new homes affordable for more people, preventing the decline from being worse.
"The reduction in interest rates allows someone who could afford a $110,000 town house [to] possibly squeeze into a $140,000 or $150,000 detached unit," he said. "It certainly has helped. If we go below 8 percent [on 30-year fixed mortgage rates], that should be an additional significant stimulus."
Builders sold 1,998 homes between July and September in the metropolitan Baltimore area, including the city and Anne Arundel, Baltimore, Carroll, Harford and Howard counties, the report said.
The weakest area was Howard County, where sales were up by only one home even compared with the very weak third quarter of last year, when the threat of war in the Persian Gulf was pulverizing consumer confidence in the economy. Howard County was hurt by its high home prices, which make it more vulnerable to a skittish market, and by the opening of three big planned communities in Anne Arundel County, Mr. Lefenfeld said.