Homes edging toward a buyer's market

Sales cool, but absence of an oversupply expected to prevent sharp drop in prices


The cool-off in the Baltimore-area real estate market has edged it closer to being a buyer's market than it has been in several years, though there's little chance of a big fall in home prices, according to local experts interviewed for an analysis to be released Monday.

"We're coming out of a two- to three-year period when it was a seller's market," said Eric Smart, principal of Bolan Smart Associates, a real estate consulting firm and project director for the study entitled Trend Watch 2006: the Baltimore/Washington Residential Real Estate Outlook. "It's a shift toward a more normal market. It's a buyer's market compared to the past two or three years."

The study, prepared by the Appraisal Institute and the Johns Hopkins University's real estate department, reports, "The prerequisite of a bubble is oversupply, which we do not have in our region." But there are some areas of vulnerability, including higher-end homes, condominiums and homes in outlying areas, the study said.

One factor that protects the Baltimore area from a big fall is that that its price run-up started later and was less steep than in other regions, the study shows. And because of its proximity to Washington, where houses are more expensive, there is a tendency for buyers to flow in Baltimore.

"What is underlying all of this in terms of a soft landing or an adjustment is when there's a run-up in the market, there's momentum and it takes a while for the train to stop," Smart said.

When the market adjusts, neighborhoods where prices were bid up in a frenzy may appear to suffer disproportionately, he said.

The Trend Watch study, which looks out over the next 18 to 24 months, is based on in-depth interviews with more than 100 prominent industry and business leaders.

Most interviewees downplayed the existence of a housing bubble, pointing out the region's job and income growth, which rank among the highest in the nation.

`Soft landing'

"Job growth and its proximity to the nation's capital continue to make our area thrive," said Henry A. Strohminger III, branch manager of the Hunt Valley sales office for Long & Foster Real Estate, who took part in the study.

"If we have any landing, it will be a soft landing," Strohminger predicted.

"Days on the market will climb slightly. It's not going to be out-of-control appreciation. Growth is not going to be as intense. We'll continue to have steady growth and appreciation.

"That's all good for our marketplace," Strohminger said.

Sensing a shift

Strohminger believes that a seller's market still exists in the region, but he does sense a shift. He estimated that the progression will be clear within four months.

"The key factor is employment," said Michael A. Anikeef, professor and chair of the Edward St. John real estate department in the Hopkins' School of Professional Studies in Business and Education. "As long as you have good employment growth, you're going to have a good real estate market. We have a real good employment outlook for the next 18 to 24 months."

In the new-home market, buyers are likely to have the edge for the immediate future, the experts agree.

"This is an opportunity for buyers to be more circumspect than they have been," said John Kortecamp, executive vice president of the Home Builders Association of Maryland, who also participated in the study.

`Frenzy is over'

"The frenzy is over. Now I think builders are going to see buyers who are less-impulsive shoppers and who expect things like finished basements and granite countertops as inducements. Buyers will have more leverage than they have had."

Anirban Basu, chief executive officer of Baltimore-based Sage Policy Group Inc., suggested looking to Boston for a preview of what the Baltimore market will look like.

"Housing in Boston has barely appreciated over the past 12 months," he said.

"I suspect that when the dust settles, housing will appreciate in the high single [digits] in 2006, far short of the roughly 20 percent appreciation we have seen over the last four quarters.

"I believe in 2007, the market will see a further deceleration in the rate of home price growth," Basu said.

He also expects that long-term interest rates will have peaked then. Afterward, the housing market may catch a second wind and mortgage rates potentially could fall, he said.

"The chance of a bubble bursting here is incredibly small, particularly with respect to other metro areas across the nation," Basu said.

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