Market should hold up, although sales may slow

New housing: It may not match last year's record, but this is expected to be a solid year for real estate sales.


January 23, 2000|By Robert Nusgart | Robert Nusgart,Sun Staff

Sales of existing and new homes will likely fall from last year's record, but that doesn't mean the market will turn soft, say those who track Baltimore's housing industry.

"In our Baltimore area we will feel what they are sensing in the U.S. -- that we will probably be down a little bit in 2000 in units from where we were in 1999," said John G. Evans, president of O'Conor, Piper & Flynn ERA. "But I think there is still a lot of demand for housing in the Baltimore market. It's always easy to say, when you've had a very hot market, that you've absorbed the pent-up demand. But I don't see it. I am sure that we've absorbed some of it, but I think there is a replenishment of it. I am expecting a good market."

Indeed, the sales of existing homes last year in the Baltimore metropolitan area kept pace with the 18-month buying frenzy that started in the summer of 1997. It wasn't until the final months of 1999 that month-over-month sales began to show slight declines.

"I think the best bet now is a flattening-out, possibly declining a bit, but most things about housing will be pretty strong," said Robert Van Order, chief economist of Freddie Mac, the quasi-government company that supplies funds to lenders by purchasing mortgages. Van Order said that 30-year fixed-rate mortgages should remain in the 7.75 to 8.25 percent range.

The National Association of Realtors is projecting that sales of existing homes nationwide in 2000 will be 4.92 million units, down from last year's record of 5.2 million.

New homes

As for new homes, the NAR is projecting a decline from 890,000 units last year to 831,000 this year.

According to Anna Pitheon, regional marketing director for The Myers Group, a Washington firm that analyzes new home construction, the Baltimore area will experience a "10 to 11 percent" decline in new home sales for 2000.

But for the area's largest builder -- Ryan Homes Inc. -- the softening in the marketplace may not necessarily be a negative.

"We are not talking about a weak market," said Bob Coursey, marketing director for Ryan Homes. "We are talking about a very strong market.

"What we are working with right now is a much more sustainable level [of housing]. The frenzy of last year was not sustainable -- it creates a trauma," said Coursey, adding that labor and materials remain scarce and costly.

"I think there are an awful lot of people in the move-up market who still have high consumer confidence, and interest rates are reasonably good for them to move up. I think that move-up buyer is still pretty strong into 2000 and maybe beyond," said Evans of O'Conor, Piper & Flynn.

High confidence

"Overall, I think we are going to stay as a strong market," said Patrick J. Kane, president of the Greater Baltimore Board of Realtors and vice president of Coldwell Banker Grempler Realty Inc. in Towson. "The consumer confidence is still very, very high. Unemployment is still at the lowest it has been in a long, long time and that is always very good for the housing markets.

"I certainly don't see anything on the horizon that will interfere with that. The only thing that will continue to slow it will be lack of inventory. Anyone thinking of selling, now is the time. It's a seller's market, no doubt about it."

Inventory, increasing home prices and values as well as mortgage rates may be the three keys as to how this year's housing market ultimately will play out.

With the absorption of so many existing and new homes in the last 30 months, the resale and builder inventory has been squeezed.

"In the beginning of 2000 it will still be an inventory story," said Coursey. "And it's not just we in Baltimore, but all over our company's geography we've been faced with this for months and months."

Because of the inventory squeeze, home sellers should continue to see more appreciation in the coming year. The simple law of supply and demand will remain in effect for 2000.

According to the Meyers Group, the average sales price for a single-family home in the Baltimore metropolitan area rose 3.6 percent through the third quarter of 1999. For an existing, detached single-family home, there has been an increase between 5 and 6 percent.

Outpacing inflation

With inflation holding at 2.5 percent, housing once again is being considered a solid investment.

"House prices are growing faster than inflation," said Freddie Mac's Van Order. "Our survey has [home prices nationwide] growing at more than 6 percent now, and I think from the standpoint of home buyers, there are a lot of people who are jumping back into the market, or trading up because of the investment aspect of housing is so strong. But [prices] haven't accelerated to the point where affordability has become a problem."

Finally, mortgage rates should remain attractive enough to keep buyers in the hunt.

"Things really haven't gotten out of hand; 8 percent mortgage rates or thereabouts for 30-year fixed rate money are still pretty comfortable by virtually any standards you can pick," said Keith Gumbinger, vice president of New Jersey-based HSH Associates, a firm that tracks and analyzes the mortgage industry.

"There is the threat of more inflation, but it's pretty safe to say that 2000 will feature, on balance, somewhat higher interest rates than we saw this year [1999]. If I had to pick a range of numbers for 2000, we probably don't see any interest rates better than 7.5 percent on average for next 52 weeks and not worse than 8.5 to 8.75."

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