A Baltimore developer will try to jump-start sales of high-end waterfront homes this month by slashing prices as much as 75 percent, a move that could lure more buyers to the region's long-stalled luxury market but also depress values for builders and homeowners.
Eleven properties in Pier Homes at HarborView, where about half the 88 waterfront townhouses finished two years ago have yet to be sold, will go to auction June 28. Minimum bids the developer would accept start as low as $329,000 for a home that's on the market now for $1.2 million up to $665,000 for a home with a current asking price of just under $2 million. The auctioneer plans to announce the terms Wednesday.
Real estate analysts say such a big price reduction would rock the entire high-end market in the Baltimore area, pressing sellers to lower their prices, putting some homeowners under water on their mortgages and potentially encouraging buyers to act.
"It will definitely have a major impact on the rest of the area," said Kenneth Wenhold, director of the Mid-Atlantic region for Metrostudy, a firm that does real estate market research for homebuilders. "It'll lower the bar."
That could be bad news for Chris Gramiccioni. The 38-year-old Justice Department attorney has a townhouse in another section of HarborView that he's trying to sell for $629,900 because he was transferred out of state.
"Oh my goodness," Gramiccioni said when he heard the difference between the current market prices and the minimum bids. "That doesn't help me at all. … I guess I'm going to talk to my wife about adjusting my price."
It's been a rough few years for sellers of luxury homes, particularly at the highest of the high end. Just 17 homes priced at $1 million or more sold in the Baltimore metro area in April out of more than 650 on the market, according to Metropolitan Regional Information Systems. At that rate, it would take more than three years to find buyers for all the rest.
The hot housing market in the first half of the past decade pushed prices skyward and gave homebuilders incentive to push the luxury envelope nationwide. That trend played out in Baltimore, where a developer began converting a hulking grain elevator in Locust Point into a swank high-rise condo project. The Ritz-Carlton brand came to town just up the road, with penthouse condos priced above $5 million apiece.
But slowing sales in 2006 started a chain reaction that rippled upward. Homeowners had a harder time selling and moving into higher-price ranges. Prices began to fall. And the mortgage meltdown pushed up interest rates for large loans, the sort that some well-off buyers need for million-dollar-plus homes.
With more home sales in recent months at the lower end of the market, the luxury category is finally beginning to thaw, Wenhold said. But it remains far from healthy.
Accelerated Marketing Partners, the Boston firm that will auction the Pier Homes townhouses built by Richard A. Swirnow, predicts that the event will break up the luxury logjam across the board.
"It's a very important litmus test," said Jon Gollinger, the auctioneer's co-founder. "Baltimore needs this."
Right now, he said, "people don't know what they should pay."
Joseph T. "Jody" Landers III, executive vice president at the Greater Baltimore Board of Realtors, said a big price reduction "certainly creates a difficult situation for the people who have purchased before, and could very well set them under water." Falling values also eventually turn into lower property tax collections, a blow for an already financially strapped city.
But filling empty homes means more people to pay income taxes and more neighbors for current residents. "Getting units occupied … is really critical," Landers said. "It helps breathe life into the whole project."
A number of vacation-home builders on the Eastern Shore have turned to auctions to cut their losses and move on. But Wenhold said much of the new-home auction activity has centered on Florida, one of the hardest-hit states in the housing bust. Often those auctions are held after the banks step in.
Jamie Riordan, principal with Lubert-Adler Partners LP, a Philadelphia-based investor that provided equity for the Pier Homes project, said the auction was a joint decision by his company, developer Swirnow and financier Bank of America. Riordan said they wanted to drive buyers to the properties, which range from 3,000 to 3,700 square feet, by cutting prices in time to take advantage of the recent drop in mortgage rates.
"We would expect that that will produce significant buyer interest, which may not be satisfied at the auction itself, but which would result in follow-on sales," Riordan said.