Baltimore-area home sales fall, but contracts rise

Increase in new pending deals is the first in months

December 10, 2010|By Jamie Smith Hopkins, The Baltimore Sun

Home sales in the Baltimore metro area continued to plummet in November, but the number of newly signed contracts rose for the first time in months — good news for a battered housing market, if the trend continues.

Homebuyers signed 6 percent more contracts last month than they did a year earlier, according to figures released Friday by Metropolitan Regional Information Systems, the Rockville company that runs the area's multiple-listing service. That upturn broke the streak of buyer pullback since May, when a federal tax credit intended to inject life into the struggling market phased out.

New contracts, which often turn into home sales in a month or two, are a key indicator of where the market is headed. But it's not clear whether the November increase is a sign of market bottom or just a short-term blip.

Mortgage rates jumped to 4.4 percent in mid-November after hovering at 4.2 percent for weeks, which could have been a factor motivating buyers to make offers. Rates are now at 4.6 percent, financier Freddie Mac said this week.

"Pending sales have a tendency to rise when interest rates rise, as a certain fraction of prospective buyers jump off the fence for fear that advantageous mortgage rates will soon disappear," said Anirban Basu, an economist who heads Sage Policy Group, a Baltimore consulting firm. "These surges in activity tend to be temporary, unfortunately, and this one may prove to be temporary as well."

He doesn't expect a sustained increase in buying until job growth picks up more strongly, which he thinks could happen next year.

"It's going to take that kind of broad economic momentum to create that sense of [home buying] urgency," Basu said.

Home sales in November, unlike contracts, continued dropping sharply in Baltimore and its surrounding suburbs. The number of completed deals fell 32 percent from a year earlier in the metro area, when buyers were rushing to beat a deadline — later extended — for the $8,000 first-time purchaser tax credit.

The average price of about $260,000 remained unchanged, Metropolitan Regional Information Systems said. (Averages can easily be skewed up or down because the homes that sell one month aren't necessarily comparable to those sold the previous year.)

The housing-market bust that rippled across the nation — following a dramatic run-up in prices during the first half of the last decade — has hung on for years now. After a temporary upturn while the homebuyer tax credit was in play, home sales in the Baltimore metro area fell to lows not seen in more than a decade.

Nearly 19,000 Baltimore-area homes were on the market in November, so many that it would take more than 10 months to land buyers for them all if the sales pace of the past year continues. That figure was under five months in 2000, when market conditions were more normal.

But despite all the choices, buyers are having trouble finding homes that suit them and are also priced reasonably, said Brendan Cooke, a real estate agent with Passport Realty in Baltimore.

"You've either got sellers that don't have a realistic idea of what their houses are worth or frankly can't sell their house for what it's worth," he said. "So it takes a lot longer to separate the wheat from the chaff, finding that right home for the person. We'll write several offers these days, it seems, for a buyer. Even when you get to the point of coming to an agreeable number, we've had lots of issues with appraisals coming in low because of the market, so we find ourselves starting over."

Dominic Cantalupo, an associate broker at Champion Realty in Anne Arundel County, said the inquiries he's getting right now are typically from buyers who are "kicking tires and getting a feel for the market." If they see a steal of a deal, they'll jump. Otherwise, they keep looking.

"We're just kind of at a stalemate," he said. "People are sitting on the fence, saying, 'Oh, prices are going to come down, and I'm just going to wait it out.'"

It's what Basu, the economist, calls a "deflationary psychology" — just as self-fulfilling as the "buy buy buy" mania that helped inflate prices during the housing bubble. Stronger job growth will help change the mood if interest rates don't also rise substantially, he said.

But Dean Baker, a Washington-based economist who warned of the housing bubble years before it popped, isn't optimistic that the housing market will turn around anytime soon. He sees "very little momentum in the economy at the moment," which leads him to believe that U.S. home prices will fall substantially in 2011.

Baker, co-director of the Center for Economic and Policy Research, doesn't expect a return to a normal number of sales for a couple of years. And bubble-period levels? Not until there's a lot more population growth.

"I don't think we're going to see a big pickup in sales activity for a long time," Baker said.

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