Suburban housing falls short in Md.

New-home supply is smallest of any major U.S. growth market

October 12, 2005|By JAMIE SMITH HOPKINS | JAMIE SMITH HOPKINS,SUN REPORTER

Suburban Maryland has the smallest new-home supply of any major growth market in the country, a key reason prices are rising, a real estate analyst told business leaders yesterday.

The news came during the Greater Baltimore Committee's Business Outlook Conference 2006, an annual event focusing on national and regional trends that could affect local residents in the near future. About 300 people attended this year to hear about the stock market, the economy, consumer spending and home sales.

Kenneth R.C. Wenhold, Washington Metro Region director for Metrostudy, a Houston-based provider of housing market data, expects to see continuing demand for new homes locally, even with interest-rate increases.

He said inventories are tight in suburban Maryland - the area reaching from Cecil and Frederick counties in the north to St. Mary's in the south, not including Baltimore City.

That swath of the state had a 4.6-month supply in the first quarter of this year, meaning that all the new homes under construction, finished but vacant or used as models would be snatched up in that time frame at the current rate of sales. Seven to eight months is typical nationally, Wenhold said. Northern Virginia, by comparison, had an 8.6-month supply.

Lot inventories in suburban Maryland are even tighter by historical standards. The area had a 6.5-month supply in the first quarter, and 16 to 18 months is typical nationally, he said. Only Southern California and Las Vegas had lower supplies of lots.

"You have incredible price escalation because there are a lot of people vying for a particular product," Wenhold said.

In the past 12 months, only two out of every 10 homes built in suburban Maryland were priced for less than $300,000, he said - and almost all were condominium units.

Even with the supply issues, price growth is slowing slightly, he said. The resale market in the Baltimore region is showing more signs of softening, but the new-home market - with its tighter supplies and longer lead times - isn't entirely comparable.

Wenhold said buyers of new homes will have a harder time affording the tab as interest rates rise, which will likely push more people further into the fringes for cheaper properties.

That doesn't bode well for quality of life - or traffic.

"You're going to have to reassess your transportation needs," Wenhold said.

Greater Baltimore Committee President Donald C. Fry said his business and civic leadership group has been doing that, pressing for state funding of a proposed Red Line transit route from Woodlawn to downtown Baltimore.

As jobs flow to the area and housing presses outward, traffic will have to be accommodated, he said.

"I think Baltimore is going to continue to experience growth," Fry said.

Nationally, investors are skittish because energy costs have soared, deficits are rising, consumers are squeezed and fears of an avian flu pandemic abound, said Richard E. Cripps, chief market strategist for Baltimore-based Legg Mason Inc.

But corporations are upbeat because inflation is low, the economy is still growing, profits are high and public companies' cash reserves are bulging.

"We have a disconnect," Cripps said. "We have a cautious individual investor, but we have a very bullish corporate America."

Anyone judging by recent performance would think homes are a much better investment than stocks, but Cripps said all economic trends ebb and flow.

"You need to be a contrarian to be a successful investor," he said.

Ken Goldstein, an economist with the Conference Board, told business leaders to keep in mind that the national economy was already downshifting from recovery to longer-term expansion before Hurricanes Katrina and Rita, and those double-whammies will have an impact.

Slowing growth means "less margin to absorb shock, and guess what happened - we got quite a shock," he said.

Consumers socked by the high energy prices that have followed the hurricanes will delay purchases that aren't immediately necessary, Goldstein said.

"This is happening at the worst of all possible times, six weeks before the holiday season," he said.

jamie.smith.hopkins@baltsun.com

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