Sales slump confounds Realtors Buyers stay away, despite good economy, low mortgage rates

January 18, 1998|By Robert Nusgart | Robert Nusgart,SUN STAFF

By most standards, 1997 should have been a breakout year for existing and new home sales in the Baltimore metropolitan market.

After all, the economy was growing. Consumer confidence was reaching all-time highs. Inflation was practically nonexistent. And mortgage rates were stable and drifting lower toward year's end.

But new home sales, which were expected to rise perhaps 3 percent, sagged consistently behind 1996 numbers. And it wasn't until September that existing home sales really began to show some signs of life.

It was confounding to those in the industry that while other metropolitan regions were enjoying the benefits of an economic expansion, the Baltimore area was doing just the opposite, with existing home sales dropping approximately 1 percent below 1996 year-end figures.

So it's understandable that industry professionals are a bit confused and certainly hesitant to boast about their expectations for 1998.

"Do I think that it's going to be boom times in another year?" Gilbert D. Marsiglia, president of the Greater Baltimore Board of Realtors, asked. "I can't say that. But I'm not so sure that the kind of market that we are in is a pretty decent market.

"People are telling me that they are busy. People are telling me that product is starting to move off the market faster."

After seeing the first six months of 1997 pale in comparison to 1996 figures, buyers, apparently awakened by a spike in rates past 8 percent in the late spring, began to move into the market. But rates did a U-turn and began a steady downward slide through the summer and fall, helping to send sales upward. July and August sales figures were essentially flat, but September had a dramatic 16 percent rise, followed by positive sales in October and November. With Anne Arundel still tallying numbers, December also proved to be a momentum-making month for the other jurisdictions, rising 15 percent.

"I was with 30 Long and Foster managers from Baltimore to Washington, and a couple of us were commenting to one another that December has just exceeded any December that we've seen in quite some time," said William Cassidy, manager of Long and Foster Realty's Fells Point office.

And with that guarded optimism, Realtors are hoping that sales momentum will spill into the first quarter of this year.

"I think that as far as the economy is concerned, as far as the country is concerned, I think people right now are still feeling good," Marsiglia added. "I don't think people out there are afraid right now. I think they are feeling good. I think they are feeling pretty secure. And I think the interest rates have remained pretty stable for a good while now."

Michael Funk, research economist for the Regional Economic Studies Institute at Towson University, agreed.

"I think that now we're beginning to see the results of these favorable [economic] conditions."

Mortgage rates indeed have been stable. In fact, 1997 was the most stable year in the last 10, according to Keith Gumbinger, vice president for HSH Associates, a New Jersey firm that surveys lenders and analyzes mortgages nationwide. And he expects the same for the coming year.

Gumbinger noted that rates for a 30-year, fixed-rate mortgage last year ranged nationally between 8.3 and 7.26 percent. And "what we are expecting is a similar range of 1 percent for fixed-rate mortgages to tread in for 1998," Gumbinger said, adding, "the world does not get a whole lot less active than that.

"The last time that we were this stable, interest rates were well into the mid-10s. The fact that rates are as low as they are certainly that's remarkable of its own accord, and the fact that they have been so incredibly stable.

"We are going to start the year with very low interest rates. Probably the likelihood is that we will see somewhat higher interest rates at intervals throughout the year. We do expect by the time it's all said and done that the range of interest rates may continue to be, or even surpass, the stability achieved last year."

Said Funk: "Right now it is as good as you can ever expect it to be. I think it would be unreasonable to think of a better situation or better conditions.

"What would you want? Lower rates? More economic growth? Lower inflation? That would be a little unreasonable. You're not going to do yourself any favors by waiting for better conditions."

And that's why new home builders in the area are scratching their heads.

Although rates are favorable, builders have been hampered with too much supply and too little demand for their products. And where Ken Sugarman, executive vice president of Housing Data Reports, a Washington-based firm that tracks new housing, expected a modest increase in new home sales, numbers through the third quarter of 1997 showed that sales were off 7.2 percent from 1996.

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