The Baltimore metro area saw average home prices rise faster in June than any other time in the past three years, but economists warned that the pickup is likely temporary — fueled by buyers rushing to beat a deadline to qualify for federal tax credits.
Sale prices rose 5 percent compared with a year earlier, pushing the average for the metro area above $300,000 for the first time in months, according to figures released Friday by Rockville-based Metropolitan Regional Information Systems. The region also saw more sales in June — almost 2,600 — than in any other month since August 2007.
But it was a highly unusual month. Until Congress delivered an 11th-hour extension, buyers had only until June 30 to close on contracts if they wanted to qualify for a tax credit worth up to $8,000 aimed at first-time purchasers. Competition for starter homes helped push prices upward in many markets across the country this spring.
But in July, the lift doesn't appear to have lasted.
"The summer's been really tough," said Azam Khan, a real estate agent with Coldwell Banker Residential Brokerage in Baltimore.
Economists expected a drop in sales activity after the tax credit because the incentive encouraged people who would have purchased later in the year to speed up their efforts. What remains to be seen is whether the pullback is short-lived.
"The housing market has hit an air pocket, hopefully, and not a brick wall," said Mark Vitner, a senior economist at Wells Fargo.
He expects home prices will fall the rest of 2010 as foreclosures mount. A full-fledged housing market turnaround, one driven by jobs and income growth rather than tax incentives, will probably take several years, he said.
"Progress is likely to be painfully slow at the start," Vitner said.
Ross Mackesey, sales manager at Long & Foster in Lutherville, said activity in his office hasn't dropped off. But he does expect some impact from the loss of the tax credit. His experience with other tax credits — such as ones for historic properties — is that they get baked into the price.
"Somebody who paid $200,000 for a house and got an $8,000 tax credit probably cannot sell it for $200,000 without the $8,000 tax credit," he said.
The homebuyer tax credit is expected to continue to have a small effect. The closing deadline has been extended through Sept. 30. The National Association of Realtors estimated that as many as 180,000 tax-credit buyers were hung up by delayed paperwork, slow-moving short sales or other problems in June, including about 2,600 in Maryland.
But with the extension up in the air until the very end of June, buyers who could close by the end of last month did. Sales in the Baltimore metro area rose just under 9 percent in June, compared with a year earlier.
The tax-credit deadline for signing a contract hasn't changed — that was April 30. Since then, the number of new deals has fallen sharply here and nationwide.
Contracts signed last month declined 17 percent from a year earlier in the Baltimore metro area. The year-over-year drop in May topped 30 percent.
Khan, with Coldwell Banker, said activity has slowed in price ranges affordable to first-time buyers, typically $250,000 and under. The end of the tax credit affects higher-priced homes less directly, he said — but those sellers have been having a rough time of it for a while.
"It's a very tough situation because everybody wants to know, 'Why is my house not moving?'" he said. "It's hard to convince them that this is just one of the worst markets we've ever seen in decades. It's not just their house. It's everybody's, across the board."
Buyers making offers are taking a hard line, Khan said. One of his clients, Barbara Lewis, got an offer on her house in Baltimore's Homeland neighborhood that was $25,000 below her current asking price — along with a demand that she replace her roof to the tune of $30,000 or more.
She countered that there was no reason to completely replace a well-maintained slate roof. But the buyers wouldn't budge.
Lewis, 74, wants to downsize to a condo or townhome from her three-bedroom Colonial. She's not opposed to waiting for an upturn in the market, though. So she declined the offer. After all, she had already reduced her asking price by $50,000 to $325,000.
"You could not rebuild this house for less than I'm asking for it," she said. "I'm really happy that I'm not in a position right now where I have to sell."
Text BUSINESS to 70701 to get Baltimore Sun Business text alerts