Car sales accelerate while housing business brakes

Auto dealers do brisk business while home prices slide

May 09, 2011|By Jay Hancock

At least one purveyor of expensive, long-lived products seems to be well out of the recession.

More Marylanders bought new and used cars in March than in any month in four years. With the federal "cash for clunkers" stimulus long behind, the auto industry is accelerating under its own power and making substantial contributions to employment, economic growth and the stock market.

Would that we could say the same thing about another durable American asset that graduated from a stimulus program. The housing business continued its long, painful and by-no-means-over slide in the first quarter, new figures from online home marketer Zillow showed Monday.

Maryland home prices fell 3.3 percent compared with the final months of 2010, according to Zillow, which calculates average prices based on a deep database of sales. Metro Baltimore home prices fell 2.5 percent during the same period, according to Zillow.

It's a double-track economy, with a surface layer of growth and progress obscuring an undertow of debt, glut and insolvency. While many economic measures seem to be improving, the industry that brought everything else down — housing — shows no sign of bottoming out. That says the country may not see a full-blown recovery until next year or later.

"We're up 60 percent year over year" so far in 2011, says Bryan Koser, sales manager with Al Packer Ford in White Marsh. "We've had record months. Record days. You name it. The last day in April we had a midnight madness sale, and people were there until midnight. We sold 23 cars that day."

Koser partly credits higher gas prices, which have consumers trading in guzzlers for economical Ford Focuses and Fiestas. He's seeing military buyers, perhaps some newly transferred to nearby Aberdeen Proving Ground as part of a substantial base realignment.

Rising consumer confidence surely is part of the equation, as corporate layoffs dwindle and the economy adds a decent, but not huge, number of jobs month after month.

Official April car sales aren't out yet from the Maryland Motor Vehicle Administration. But in March, dealers sold 27,667 new cars, up 26 percent from the same month in 2010. It's the best monthly result since early 2008, including all the "clunkers" stimulus months in 2009.

Used-car sales were even more impressive, with 65,857 vehicles changing hands in March. That's the highest for one month since March 2006. Combined used- and new-car sales for March of 93,524 vehicles was the highest for Maryland since early 2007.

Used cars with great gas mileage are even appreciating in value. The 2010 Focus (34 mpg highway) that you could get for $12,000 in February might cost $14,000 now, Koser says.

Meanwhile, house prices continue to head sharply downward after a respite granted by the homebuyer tax credit, which expired last year. Nationwide, home prices fell 3 percent in the first quarter, "a pace of decline not seen since 2008 when the housing recession was at its worst," according to the Zillow report.

More mortgages than ever were "under water" last quarter, according to Zillow, with the outstanding balance on 28 percent of all home loans higher than the value of the house. Zillow analyst Stan Humphries increased his projection for 2011 price declines to as much as 9 percent and pushed back his prediction for a housing price bottom from this year to 2012.

The housing story is one of supply gluts that seem to shrink, only to be replenished by properties from the seemingly perpetual source of bank seizures. Foreclosures are accelerating again after regulatory and litigation-related delays. Maryland's First Mariner Bancorp seems to show what's happening, with the value of foreclosed real estate on its books popping up to $28 million last quarter, a 42 percent increase from levels of the first quarter in 2010.

Some recovery. Those properties, too, will be dumped on a market pinched by the tightest credit standards in many years. Across the economy, there are doubtless more houses on the way from the "shadow inventory" of defaulted mortgages whose properties haven't been repossessed yet by lenders.

On the other hand, the supply-demand balance favors auto dealers. A decade of less-than-robust economic growth left Americans with really old cars. The average vehicle is nearly 10 years old. A few months ago, auto research firm R.L. Polk reported that people had owned their cars for more than five years on average, up 14 percent from 2008.

Old cars eventually need replacing. Eventually is now for many drivers.

Used cars, which are supposed to depreciate, are getting more valuable. Home prices, which were never expected to fall, continue to plunge. Not back to normal yet.

jay.hancock@baltsun.com

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