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.
The couple had a few must-haves as they looked in Howard and Montgomery counties: a good school district, a two-car garage or space to build one, and gas heat.
Kristina Pannone said they didn't find much, despite following listings daily. Whenever they liked something, their real estate agent would check and report back that it was already in a multiple-bid fight.
The house they ended up getting under contract in July in Columbia's Kings Contrivance village — gas, two-car garage and a high school they liked — hit the market on a Thursday and had four offers by the following Monday. The Pannones barely had time to get house-savvy relatives in to take a look before making an offer.
But Kristina Pannone says she's happy with the house, on which she and her husband closed Thursday. "We love our jobs, we love the area, so we knew this was a place we wanted to settle down [in] and raise a family," she said.
The Pannones were thinking ahead when they prioritized school districts: They don't have kids yet.
That speaks to the enduring power of public education in the housing market. Linda-Lou O'Connor, an entomologist and mother of two, could see its impact as she looked for a home this year in Howard and Anne Arundel counties.
"I found that houses in the not-really-good school districts seemed a lot nicer than the houses in the really good school districts," she said. "They were in better shape, better upkeep, less expensive. And then the houses in the good school districts would go super fast."
It's true that the supply of houses for sale varies in communities across the region — for reasons that include schools and waterfront settings. A Sun analysis of August home sales data from RealEstate Business Intelligence found that Baltimore's 4.9-month supply is the highest in the region, with Carroll and Harford counties close behind. The rest of the counties are all below four months.
The very low end of the range includes the 21046 ZIP code in Columbia, with just a 1.1-month supply, and the 21042 ZIP code in Ellicott City, with a 2.4-month supply. Among the places hovering around three months are Severna Park, Bel Air's 21015 ZIP code and a stretch of Baltimore that includes the popular Canton neighborhood near the Inner Harbor.
But West Baltimore neighborhoods south of Druid Hill Park had a seven-month supply of homes in August. The ZIP code that includes Cherry Hill in the city and Brooklyn Park in Anne Arundel County was near that level, too.
Still, that's nothing compared with the bevy of choices for high-end buyers. Among homes priced at $1 million and up, the region's supply tops 20 months.
"In one of the areas that are in high demand, you might think, 'Wow, there's really low inventory,'" said Dominic Cantalupo, associate broker at Champion Realty in Pasadena and a longtime agent who works throughout the region. "But in other areas, you can find houses all day long."
Overall, prospective buyers remain far more cautious and selective than they were during the housing bubble, even with choices shrinking, he said. (The good news for buyers: Inventory still isn't as tight now as it was then. The region had less than two months of supply in August of 2002, 2003, 2004 and 2005, compared with four months now.)
Even in low-inventory neighborhoods, sellers can't set just any price, said Redfin's Ikle. Buyers are armed with information gleaned online about the house and its competition. The average price in August rose 3 percent over the year in the Baltimore area, a far cry from the 16 percent leap in August 2005.
"The market will tell you pretty quickly if you're at the wrong price," Ikle said.
O'Connor, who has daughters ages 11 and 13, ultimately bought in Severna Park — the schools there were a big draw for the family. She likes the area, too, and the woods next to her property.
The downside: The house, which she got under contract eight days after it hit the market, is smaller than she was hoping for and not as updated inside.
But she and her husband, Dennis, didn't have to pay at the top of their range — the sellers accepted a $510,000 offer, $40,000 less than their asking price — so she's planning upgrades. Like a third bathroom.
"It seems if you want a school district, there's things you have to settle for," O'Connor said. "But from what I looked at, I thought it was by far the best choice that I had."