Defying rising mortgage rates and economists' expectations, sales of new homes shot to the highest rate in a decade in May, the U.S. Commerce Department said yesterday. But Baltimore's sluggish sales ran counter to the national surge.
Nationally, sales of new homes jumped 7.5 percent to an annual rate of 828,000 from April to May, the Commerce Department said.
But in Baltimore and the five surrounding counties, sales dropped for single-family homes, townhouses and condominiums during the same period -- 18 percent overall, said Washington-based Housing Data Reports Inc., which tracks the new-homes market in Washington and Baltimore.
Sales soared 21 percent in the Midwest and 10 percent in the South, boosting national sales volume to its highest annual rate since reaching 857,000 in April 1986. The jump took economists by surprise.
"It's remarkable. We don't have one explanation," said Stanley F. Duobinis, director of forecasting for the Washington-based National Association of Home Builders. "Two or three things are making the market quite robust."
Despite average increases in the cost of a 30-year, fixed-rate mortgage of more than a full percentage point, "It appears people are still convinced the economy is good, and you can still get a good interest rate on a mortgage," Duobinis said. "They're still out there looking."
Many buyers have turned to the lower-rate adjustable mortgages as a way to qualify for loans, Duobinis said. And others who closed on a house in May initially had gotten into the market before mortgage costs rose to their current levels.
For instance, rates on 30-year fixed loans averaged 7.62 percent in March and 7.93 percent in April. But by last week, average rates had climbed to 8.29 percent, the Federal Home Loan Mortgage Corp. reported.
Duobinis also noted that an independent survey of large builders showed a smaller increase in home sales from April to May than that reported by the Commerce Department.
In the government report, the annual sales rate has exceeded 700,000 each month this year. But May's increase most likely represented a peak that will be followed by a decline in June, he said.
Despite factors that should boost the local new-homes market -- builder incentive packages, greater flexibility among lenders and mortgage rates -- though rising -- at historically low levels, "you simply have a bad economic feeling and loss of confidence," said John P. Martonick, president of the Home Builders Association of Maryland.
"So many people have lost their jobs," Martonick said. "No matter how good a marketing program you have, you cannot make a person confident enough to purchase property."
Homebuilders also have been hurt by contract cancellations when potential buyers can't sell their homes for the price necessary to buy the new one. That's the reason behind most cancellations at Ryland Homes, said Wanda Cross, sales and marketing manager for the Baltimore division.
"With the loss of proceeds from the existing home and an increase in rates, some people have gotten caught," she said. "There are a lot of choices, but there aren't as many people now ready to buy."
Maryland falls into the Commerce Department's grouping of southern states, one of the stronger regions, but has remained among the weakest states in the nation, Duobinis said.
"There's no question that several states, three in particular, Maryland, Connecticut and California, are way behind the performance of the rest of the country and behind the average," he said. "They have three of the worst performing economies and three of the weakest housing markets."
Baltimore's market, in particular, has suffered because of a city job growth rate that increased just 0.3 percent from April 1995 to April 1996. Job growth in the state increased 2 percent during the same period. Through April of this year, the number of permits for single-family homes fell 4 percent in Maryland and 1 percent in Baltimore, statistics compiled by the National Association of Home Builders show.
"It's job growth in the preceding year that determines people getting into the housing market," Duobinis said. "You might buy a car, but you won't buy a house. Until we start getting replacement jobs, we will not see any strengthening in the housing market."
In May, the average price of a new home fell to $162,300 from $168,700 in April, the Commerce Department said.
Pub Date: 7/03/96