Nerve-wracking economic conditions and more stringent mortgage requirements helped push home sales in the Baltimore region to their lowest level for the month of October in at least 13 years, putting more downward pressure on prices.
The average sale price in the city and surrounding counties dropped 6 percent in October compared with a year earlier, to about $255,000, Metropolitan Regional Information Systems said Thursday. That's down about 20 percent in all since prices peaked in 2007.
The Rockville company said the number of homes changing hands dipped about half a percent to just over 1,600 — the lowest October figure since it began tracking the region in 1998. The number of homes selling between $500,000 and $600,000 dropped more than 20 percent, a change that appears to be driven by an Oct. 1 decrease in mortgage limits for government loans.
The Federal Housing Administration and financiers Fannie Mae and Freddie Mac will no longer make loans larger than $494,500 in the Baltimore region. That's about $65,000 less than the previous ceiling, temporarily raised in 2008 in an effort to help the troubled housing market as mortgage options shrank.
On top of that, October home sales were largely the result of contracts inked in August — a month that seemed designed to put the brakes on any big consumer purchases.
"August was a brutal month," said Greg McBride, senior financial analyst with Bankrate.com. "We had the debt-ceiling debacle, the debt-rating downgrade, a barrage of poor economic data and a stock-market correction all within two weeks. It crushed consumer confidence."
More recent economic news hasn't been so dire, which bodes better for sales in the near term as contracts turn into settled deals, McBride added.
Indeed, newly signed contracts in October — which will likely settle in December — rose 20 percent compared with a year earlier in the Baltimore region, according to Metropolitan Regional Information Systems. The new-contract figure is about on par with the average for the month over the previous five years, though still much lower than during the preceding housing boom.
Lower loan limits, meanwhile, are likely to have a dampening effect on parts of the housing market. So-called "jumbo" mortgages above the government-loan ceiling are more expensive — the going rate is about half a percentage point higher — and sometimes require 25 percent to 30 percent down payments, McBride said. FHA-insured mortgages allow down payments as low as 3.5 percent.
Michael Hamby, a real estate agent with Champion Realty in Annapolis, said some banks are permitting 10 percent down on jumbo loans, but he's finding that's still a big burden for many potential buyers.
"I personally lost between 10 and 12 different buyer clients as a result of them not being able to afford the market," he said. "Oct. 1, it was like somebody slammed the door in our face in our office. We could just see the level of business slow down."
Mike Sloan, a partner in the Pat Hiban Real Estate Group in Howard County, the most expensive market in the Baltimore region, said he's not seeing an impact yet. But he figures the lower loan ceiling will change the dynamic for homeowners. If sellers can set their asking prices at about $500,000 or less, they'll have an easier time than those who ask for more.
Sloan is frustrated that Howard County is lumped into the Baltimore area for loan-limit purposes, because the Washington-area limit is a much higher $625,500. That means borrowers in Howard County, where the average price is about $370,000, can't get government loans as large as borrowers in Prince George's County — where the average price is about $200,000 less.
"It's just preposterous," Sloan said.
Marc Witman, a partner with Yerman, Witman, Gaines & Conklin Realty in Baltimore, suspects buyers affected by the lower loan limits will be more likely to adjust their price range downward than drop out of the market. As sales in the $500,000 range fell in October, 7 percent more homes sold between $400,000 and $500,000 compared with a year earlier.
Witman said he sees plenty to be optimistic about — especially in Baltimore County, where home sales actually rose 20 percent in October. Buyers are signing more contracts in Baltimore and every county in the metro area. And the number of homes sitting on the market is falling — down 15 percent from a year ago regionwide.
In some cases, sellers are simply giving up. And others who were thinking of listing their homes changed their minds once they saw the price they could get. But Witman said that's helpful for the market, even if it's not good news for the homeowners.
"I'd rather have them just sit on the sidelines than put their house on the market at an unrealistically high price and create inventory that's artificial," he said. "If you're not a seller at the real price, don't be on the market."