Maryland home prices rose 23% June to June

Yearly increase is largest in federal index's 30 years

State ranks 7th in appreciation

No evidence found that prices are topping out

September 02, 2005|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Low mortgage rates and growing demand for housing caused Maryland home prices to rise nearly 23 percent in the year that ended in June, the largest yearly increase in three decades.

The state's one-year increase ranked seventh in the nation, the Office of Federal Housing Enterprise Oversight said yesterday. It compared with a national average gain of 13.43 percent for the one-year period - the largest increase since the 12 months that ended in June 1979.

Maryland joined three other states in reaching the highest level of price appreciation in the 30-year history of the agency's housing index.

The Office of Federal Housing Enterprise Oversight's index tracks average price changes reflected in mortgages or refinancings up to $359,650 in each quarter.

The index showed that one-year appreciation increases in Virginia, Arizona and Florida also rose to record levels. Maryland's 22.98 percent increase in home prices was the highest since the one-year period that ended September 2004 at 22.73 percent.

The housing market in Maryland, as in much of the nation, has remained strong as interest rates have stayed near historic lows, allowing buyers to afford pricier homes.

But escalating prices have raised concerns among many economists, including Federal Reserve Chief Alan Greenspan, who fear the market could suffer if mortgage interest rates rise.

Even so, experts pointed to the report as proof the market remains sound.

"There is no evidence here of prices topping out," said Patrick Lawler, chief economist at the Office of Federal Housing Enterprise Oversight, which oversees Freddie Mac and Fannie Mae.

Mortgage giant Freddie Mac said yesterday that benchmark 30-year interest rates across the nation fell for the third straight week to 5.71 percent from 5.77 percent.

Some economists said investors are worried that rising energy prices in the aftermath of Hurricane Katrina will hurt the economy. That could prompt investors to look for safer investments, such as bonds, which may help drive interest rates lower, said Anirban Basu, head of Sage Policy Group, a Baltimore economic consulting firm.

"It is likely that we will be in a historically low interest rate environment for potentially several more months," he said. "People do not care about the price they're paying for a home. They want to know a monthly mortgage payment.

"Even if home prices are rising, mortgage payments are not rising as dramatically as home price, and this is fueling the marketplace."

In the Baltimore area, the average sales price of a house raced across the $300,000 mark for the first time ever in June, according to local real estate data. The average price that month hit $309,090 in June, a more than 17 percent increase compared with June 2004.

"I'm not seeing any slowdown in the market," said Henry A. Strohminger III, president of the Greater Baltimore Board of Realtors. "We're still seeing increasing appreciation in all market places in the Baltimore metro area."

Maryland has also benefited from its position in the Baltimore-Washington market, where strong job growth has resulted in an influx of high-income workers seeking housing, said Andrew Leventis, an economist with Office of Federal Housing Enterprise Oversight.

"Folks are moving into the D.C. and Baltimore area, at least in some part resulting in the price increases," Leventis said.

Local restrictions on home building and a lack of residentially zoned land has limited housing supply and has also driven up prices in Maryland, Basu said.

The Office of Federal Housing Enterprise Oversight publishes a housing price index that showed 25 states and Washington, D.C., with double-digit annual price growth - eight showed increases of more than 20 percent.

Nevada has continued to lead the way in price appreciation, but for the first time since the fourth quarter of 2003, Las Vegas dropped off the list of the 20 fastest growing metropolitan statistical areas.

The Office of Federal Housing Enterprise Oversight's index is based on an analysis of combined mortgage records of Fannie Mae and Freddie Mac, the nation's largest database of conventional mortgage transactions. The data do calculate average prices for specific markets.

The Baltimore-Towson metropolitan statistical area ranked 43rd in the nation in price appreciation, with a one-year increase of 22.32 percent, the index showed.

The Bethesda-Frederick-Gaithersburg area ranked 40th, with 23.21 percent increase in appreciation. Washington's metro area ranked 26th with an increase of 26 percent.

Still going up

Home price appreciation for the 12 months that ended in June:

1. Nevada 28.13%

2. Arizona 27.82%

3. Hawaii 25.92%

4. California 25.16%

5. Florida 24.45%

6. District of Columbia 23.53%

7. Maryland 22.98%

8. Virginia 20.93%

9. New Jersey 17.76%

10. Rhode Island 16.72%

Source: Office of Federal Housing Enterprise Oversight

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