Housing: Low Mortgage Rates Will Boost Sales Maryland's Economy: Looking Up

January 02, 1994|By Lorraine Mirabella | Lorraine Mirabella,Staff Writer

The lowest mortgage interest rates in a quarter-century failed to send housing sales soaring in much of 1993, but this year stabilized rates and strengthened consumer confidence should lead to healthy sales gains in Maryland's existing and new-homes markets.

Analysts and industry experts predict 3.5 percent to 4 percent increase in sales of existing homes. The new-homes market could fare even better, with increases of at least 5 percent.

"We're looking forward to a good year, certainly better than 1993," said Arthur Davis III, president of the Maryland Association of Realtors. "There is still a lot of pent-up demand."

The optimism is based upon several expectations:

* Interest rates -- a key factor driving home sales -- should remain low, although slightly higher than they were during the last quarter of 1993.

Having bottomed out at 28-year lows below 7 percent last year, rates are expected to peak at around 8 percent this year.

That level -- low compared to double-digit rates of much of the last decade -- still will allow "a reasonably steady growth in housing, though it puts a few more people out of the market," said Keith T. Gumbinger of HSH Associates of Butler, N.J.

Steve Hanke, professor of applied economics at Johns Hopkins University, says the creep up in mortgage rates is "a positive sign."

"A little firming in the rates tends to start people into action," he says. "They want to get on the train before it gets out of the station."

* Confidence in the economy will get stronger, bolstered by low dTC unemployment. As consumers feel more secure in their jobs, they will be less likely to delay buying homes.

* Potential buyers who gambled that rates would drop further will take the plunge and buy homes.

"This is happening right now," said Chang Min Kong, associate professor of economics at Towson State University. "If rates go up further, people might rush into the market, but only temporarily."

* Mortgage refinance applications will taper off as interest rates edge up. But home purchase loans will pick up, with the greatest surge in buyers moving up to bigger, higher-priced homes. First-time buyers -- many of whom took advantage of record-low interest rates last year -- will make up a smaller share of the market.

Refinancing of existing mortgages for lower rates has accounted for as much as 62 percent of loan applications nationwide, according to the Mortgage Bankers Association. But this year, that percentage could slide to 30 percent to 40 percent, both nationwide and statewide, said Dusty Lashbrook, senior vice president at Maryland National Mortgage and chairman of the Federal National Mortgage Association's liaison committee for the Mortgage Bankers Association of Maryland.

Not all sections of the state will share equally in the growth, however. Continuing a decade-long trend, sales in the city of Baltimore, for instance, are expected to lag suburbs.

Howard and Anne Arundel counties should benefit the most because of their prime location between Baltimore and Washington.

Sales should be especially strong where new developments are concentrated, such as in Odenton and Crofton in Anne Arundel County, Bel Air's Route 24 corridor in Harford County and Owings Mills and White Marsh in Baltimore County.

Throughout the metropolitan Baltimore region, 8,100 new homes sold through the third quarter of last year, and 9,500 homes were expected to have sold by year's end, said Robert Lefenfeld, an analyst for Legg Mason Realty Group.

Mr. Lefenfeld believes more than 10,000 new homes will sell this year.

During the first half of 1993, low interest rates did little to spur sales of existing homes the Baltimore area, where settled sales fell 6 percent compared with the first half of 1992. Analysts blamed weak consumer confidence and bad weather in February and March.

But after a dismal first half, home sales rose for six straight months, jumping 20 percent in November.

"The market is reaching some momentum," Mr. Lefenfeld said. "[This] year we feel is going to be a relatively strong year. With improved consumer confidence tied with a strong affordability picture, hopefully people will be making moves that they otherwise might not have felt comfortable making."

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