Kristina and Anthony Pannone spent eight months looking for a house. The ones they liked kept getting snapped up, until they finally topped three other would-be buyers for a place in Columbia — by offering $5,100 more than the asking price.
Their experience is becoming more common in the Baltimore area for a simple reason: diminishing choices. In recent months, the supply of homes for sale in the region has been at its lowest level since the housing-bubble years of the mid-2000s, according to a Baltimore Sun analysis.
There's a four-month supply of homes at the current pace of sales regionwide, and much less in popular communities such as Howard County, which has the area's tightest supply. Economists say six months or so is about normal, balancing supply and demand. When the number declines, buyers feel the pinch — and can find themselves in bidding wars like the one the Pannones confronted.
The main problem is that the region has a shortage of homes people can afford to sell. Housing prices are still substantially below their pre-recession peak, effectively trapping tens of thousands of owners who owe more on mortgages than their properties are worth. As the economy has improved and more Marylanders have returned to work, demand has begun to outpace supply.
"I'm just super-surprised how few houses are actually on the market," said Kristina Pannone, a 25-year-old chemist. "People were fighting for the limited amount of houses that were out there."
For buyers, that's translating into extended searches, pressure to get offers in quickly, and seller-wooing — like writing "love letters" explaining why they deserve to be picked. One buyer won out on a house this summer in Baltimore County's Stoneleigh neighborhood, despite a slightly lower bid than his competition, because his letter noted that he'd grown up on the same street and wanted to raise his son there, according to Redfin, the real estate brokerage that represented the Pannones.
Across the region, a quarter of the homes changing hands last month were on the market 10 days or less, according to Rockville-based RealEstate Business Intelligence. In Howard County, fast-sale properties accounted for 40 percent of the total.
"Buyers look at me and say, 'When are things going to get better?'" said Lynn Ikle, who leads Redfin's Baltimore team. "I wish I had the crystal ball. I just don't know."
People talk about the "mini bubble," she said, and it's not hard to see why. Fighting over homes is what buyers did in the mid-2000s, driving up prices so fast that when the bubble burst, it helped push the country into the Great Recession. Home loans soured, banks foreclosed, values sank.
The current scarcity isn't so much a reversal of that bust as the continued fallout from it. Though the economy has picked up, it's still far from the boom years. Banks continue to work through a backlog of foreclosures. Prices are rising but not at a fast clip.
That's left a lot of homeowners in the hole and essentially unable to sell — not yet, anyway.
Just over 80,000 homeowners in the Baltimore area owed more on their mortgages this spring than the properties were worth, real estate data firm CoreLogic estimates — that's 13 percent of all mortgaged homes. And another 25,000 homeowners had so little equity that they would at best cover their sales costs and walk away with nothing.
"Even though home prices have been rising … in a lot of hard-hit areas they're still not close to where they were at peak," said Celia Chen, a housing economist for Moody's Analytics. "When homeowners have negative equity, they're just less likely to sell their houses because they're going to lose money."
Chen, analyzing the most recent repeat-sales data, said home prices in the Baltimore area were 4.5 percent higher in the first three months of the year than they were at the market bottom in late 2011. But they were still down 21 percent from the height of the bubble.
Nationwide, home prices were up 11.5 percent since the bottom but — because they fell harder — were still 26 percent lower than the peak.
Though the economic recovery has been far from robust, it has created enough jobs to increase demand for housing, Chen said. Nationwide, there is about a five-month supply for resale homes, she said.
Another factor to blame for thin choices: There are not a lot of new homes. Homebuilding remains near historic lows nationwide, Chen said, as the decimated industry struggles to rebuild itself.
Foreclosures are still hitting the market locally and nationally, complicating the outlook and creating bank-owned competition for certain sellers. More of those generally low-priced homes are coming: Maryland has one of the nation's highest rates of foreclosure, according to CoreLogic.
Meanwhile, rising mortgage rates — now hovering just above 4.5 percent, up from 3.4 percent in January — could inhibit demand as some buyers are priced out. Rates "could put a damper on the housing market" if the upward trend accelerates, Chen said.
The trend took a bite out of the Pannones' price range. Their original maximum was $500,000, but as the hunt for a home dragged on and rates rose, they had to pull it back to $480,000 — what they ultimately agreed to pay for their new house.