Going from boom to glut

Homeowners are finding that houses are on the market longer, sometimes requiring markdowns

August 27, 2006|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

Tom Mooney figured $645,000 was a reasonable price for his five-bedroom Colonial in Towson - $15,000 more than the last similar house in his neighborhood sold for.

That was three months and four price drops ago. He's asking $575,000 now, facing a two-mortgage future if a deal doesn't materialize before he settles on his new home next month.

The five-year housing boom that pushed prices up 80 percent in the Baltimore region ended last fall, but as recently as a couple of months ago, it appeared that the market was downshifting for a fairly soft landing. Prices kept going up, though more slowly, even as more houses came on the market and the pace of sales dropped.

Now, as the market heads into its historically slower months, that so-called soft landing is looking harder by the day. More than twice as many homes are for sale as there were a year ago, and they're taking significantly longer to sell. Markdowns can be found across the region.

By some measures, the Baltimore area's housing market is the slowest it has been in six years.

Real estate agents, noting that 2000 wasn't a bad year, say that this is simply a return to normal. But the abruptness of the return has taken sellers and real estate professionals by surprise.

The quick change here has a variety of causes: slightly higher mortgage rates, fewer buyers who can afford the high prices produced by the boom, investors unloading a multitude of newly rehabbed houses - and on top of it all, sellers only now starting to recognize that they can no longer expect to get more than the neighbor did a few months back.

"There are a lot of homes for people to choose from, a whole lot more than there would have been a year ago," said Mooney, who never thought his own would sit this long. And as co-owner of O'Conor & Mooney Realtors in Lutherville, he's not an uninformed seller. "The buyers ... don't feel a sense of urgency."

For most of the year, at least, sellers have done surprisingly well. A Sun analysis of the resale market in the first half of the year showed that many of the metro area's ZIP codes - more than half - were still seeing double-digit price increases compared with the same time last year, even with sharply slowing sales.

Prices throughout the region rose 10 percent, significantly above the average of the 1980s and 1990s. In roughly a quarter of ZIP codes, prices soared 20 percent or more. And even Fulton in Howard County, now the most expensive area in the region, saw an increase of 14 percent - $125,000.

But these gains took place despite the rising number of homes on the market and the increasing time to sell them - an unsustainable trend, economists say.

Signs of that pressure were beginning to show. Average prices fell in nine ZIP codes across the metro area, according to the newspaper's analysis of multiple listing service data from Metropolitan Regional Information Systems Inc., known as MRIS.

Further slowing is evident in more recent weeks: Last month, average prices in the region rose just 6 percent versus July 2005. Sales continued to plummet.

Nationwide, sales fell less sharply but prices barely inched upward. New-home builders are feeling the same pressure: Unsold inventories in the U.S. hit record levels last month.

"We're finding now that people really do have to reposition their properties on the marketplace to get interest from buyers, and sometimes that does mean pricing under the asking prices of last year," said Judy Plowman, president-elect of the Harford County Association of Realtors.

Low interest rates had touched off booms in large parts of the country, but the Baltimore area got extra juice from two local trends: Washington workers looking for cheaper homes than they could find in their metro area, and investors flooding into Baltimore City to fix up rowhouses - or simply to speculate.

A June report by Global Insight Inc. and National City Corp. suggested that the Baltimore and Washington metro areas were overvalued by 32 percent and 38 percent, respectively. Baltimore didn't even make the worst 70 overpriced areas - California and Florida metros dominated the top - but the researchers warned that markets overvalued by at least 34 percent are at most risk for declines.

Moody's Economy.com, which thinks that Baltimore is one of the most bubbly areas in the nation, expects that the region will see price drops in the next year, 5 percent to 10 percent "at the worst," said chief economist Mark Zandi. Plan on a year or so of flat values afterward, he said. He wouldn't call that a crash, but he thinks the effect nationwide will be more modest.

The Baltimore area should see price gains again by 2008 or 2009, especially as thousands of jobs begin to arrive from the national military base restructuring, he said.

But for now, he expects fair-weather sellers - empty-nesters and others who threw their homes on the market with an idea of getting top dollar - will start bowing out.

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