Healthy outlook for area housing

Soft landing: It may be harder to find a house to buy this year, and it may cost more, but the mortgage lender may seem friendlier.

January 21, 2001|By Robert Nusgart | Robert Nusgart,SUN STAFF

If you're looking to purchase a home in 2001, be prepared to pay more and to spend more time finding the right house. However, you'll be able to borrow more to cope with rising prices, and mortgage rates are expected to decline.

With the economy heading for an expected "soft landing," Realtors, homebuilders and industry analysts are predicting that 2001 will be another healthy year for housing in the Baltimore metropolitan region, although not as strong as last year.

"It looks to be that [existing sales] are going to be off some. I think it is time for a slowdown ... but I don't want a big one," said P. Wesley Foster Jr., president of Long & Foster Real Estate Inc.

For the past three years Foster has predicted that sales would be off 10 percent each upcoming year, but he has been "delightfully wrong" each time. "I am predicting it one more time," he said.

Realtors thought 1999 couldn't be better than 1998, but it evolved into a record year for existing home sales. Certainly, they then thought, 2000 couldn't outperform 1999. Wrong again as preliminary figures show that 2000 was up 2.69 percent over 1999.

"I'm expecting 2001 to be in the league with 1999 and 2000," said Patrick Welsh, president of the Greater Baltimore Board of Realtors, who expects sales locally to possibly be "5 or 10 percent [different] one way or the other. In any event, it will certainly be a good year. Those will be good numbers."

Nationally, the National Association of Realtors expects that 2000 will be off only 4 percent from 1999's record year of 4.99 million units sold, and that 2001 will be "fairly stable, according to David Lereah, NAR's chief economist, with sales declining 1.1 percent to 4.94 million homes.

"It's surprising," said John Evans, president of O'Conor, Piper & Flynn ERA. "Everybody thought in 1999 that 2000 was going to be a little bit less. But I think [2001] is going to be softer for sure."

Perhaps, but housing economists, although predicting fewer sales, contend that consumers are still confident about their jobs and the economy and won't shy away from purchasing a home.

"I'm not seeing clouds on the horizon" said Margaret Murphy, vice president of the Baltimore branch of the Federal Reserve Bank of Richmond, Va. "The interest rates, in terms of the long-term picture, they are not high. Maryland is doing well."

Mortgage rates have steadily drifted lower since peaking at almost 9 percent in May 1999. Most housing economist expect the 30-year, fixed rate mortgage to hover around 7.5 percent in 2001. But Keith Gumbinger, vice president of HSH Associates, a New Jersey firm that tracks and analyzes mortgages, believes that rates could drop further.

"Certainly, if we get a couple of weeks, a couple of months, a quarter's worth of very slow growth and it appears that inflation is receding, you could see a rundown to 7 percent," Gumbinger said. "I don't think that is out of the question at all."

Gumbinger also predicted another round of refinancing for homeowners who took out mortgages above 8 percent last year if rates continue to fall.

But economists agree that consumer confidence is an even more critical factor.

"The thing that is driving all the housing demand is that not only do people have a job, but they've had that job for a long time and they feel good about it; we are seeing that all the way down the income spectrum," said Stanley Duobinis, assistant staff vice president and director of forecasting for the National Association of Home Builders.

"The last hired - we always talk about the last hired, first fired - well, the last hired was five years ago," added Duobinis, who grew up in Canton. "They've had time to accumulate a down payment. They are in good shape. Unless they think the industry that they are in is going to tank and their job would be in jeopardy, why not go out and purchase?"

However, inventory remains a problem. "If we had more houses to sell - inventory has been the problem - we'd have more volume than we had," said Foster, whose company, buoyed by the purchase of Towson-based Grempler Realty Inc., achieved another record year of sales with 79,203 properties settled, a 17 percent increase over 1999.

For area builders, the land squeeze, combined with the continuing implementation of Smart Growth policies by the state and local jurisdictions, has had its effects on supply and demand.

"Prices are going up and it is all related to land," said Kevin Carney, president of the Home Builders Association of Maryland. "Land prices are going up and it is a function of scarcity and the location of where people want to live."

Carney, the developer of the Villages of Winterset across from Owings Mills New Town, said the lots originally sold for $61,000. "Today, those same lots would be in the $75,000 range ... at least 15 percent more," said Carney, who estimated that land has risen 20 percent in the last five years. Baltimore, like most of the country, has experienced rising home values.

According to the Meyers Group, a Washington firm that tracks and analyzes new-home construction, the average sales price of a single-family-detached home in the Baltimore region through the second quarter of 2000 was $257,590, a 6.6 percent increase over 1999. The average sales price of an existing home through the first half of 2000 was $158,953, a 4.62 percent increase over the first half of 1999.

Taking rising home values into consideration, Fannie Mae and Freddie Mac, the two federally charted companies that supply funds to lenders by purchasing mortgages, have raised their loan amounts for single-family purchases to $275,000, up from $252,700 last year.

Even so, Baltimore is expected to thrive in 2001.

"The downtown is certainly revitalized," said Duobinis. "I think Baltimore has a strong opportunity for the future, both economically and in the housing market."

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