Home sales ratcheted up in May even as buying choices continued to shrink in the Baltimore area, leaving sellers with more leverage than they've had in five years — at least for now.
The number of homes changing hands in the metro area rose 13 percent compared with a year earlier, according to numbers released Monday by Rockville-based RealEstate Business Intelligence. The increase was driven by transactions with a regular seller, not a bank, thanks to a steep and likely temporary decline in foreclosures for sale.
That's giving sellers a break after years of losses. The average price for homes sold in May that weren't foreclosures or short sales rose about 3 percent from a year earlier.
Diminishing options — and not just for bank-owned homes — are part of the story. The number of homes for sale in May dropped more than 25 percent from a year earlier, to about 12,700.
It would take just under five and a half months to sell everything on the market at the current pace, the lowest level since June 2007. Economists say buyers and sellers generally have equal negotiating power at six months, with more power shifting to sellers as the number drops.
Robin Fernald, who lives near Patterson Park in Baltimore, said he's seen a marked change since he and his wife began looking last fall for a bigger home in the city. When they made their first offer in April, they were outbid.
"There's not that many houses that we'd be interested in on the market, and … the good houses don't last long," he said. "It's been a little surprising."
Fernald said they're not limiting their search to one neighborhood and are open to homes in need of fixing up, if the price is right, but so far that flexibility hasn't helped.
One factor affecting him and would-be buyers across the region is far fewer bank-owned properties for sale than in the past few years, the result of mortgage servicers pulling back on foreclosure proceedings after revelations of widespread robo-signing in late 2010.
The region had half as many foreclosure sales in May as it did a year earlier, according to RealEstate Business Intelligence, or RBI.
Short sales spiked 60 percent compared with a year earlier as servicers turned to that foreclosure alternative, surpassing bank-owned sales for the first time since the multiple-listing service began tracking them three years ago. But such deals — in which banks allow borrowers to sell for less than their mortgages — remain a small part of the market.
About 230 of the almost 2,400 homes that changed hands in May were short sales, RBI said. Just under 220 were foreclosures, down from about 440 a year earlier. The average price of a foreclosure is so low — about $130,000 — that the average sale price for all homes in the region soared nearly 9 percent in May mainly by dint of fewer distress deals pulling the total downward.
The $25 billion national mortgage servicing settlement approved by a federal judge in April raised expectations that foreclosures would accelerate later this year.
The owners of about 26,000 homes in the Baltimore area were at least four months behind on their mortgages during the first quarter, said Celia Chen, a housing economist at Moody's Analytics. That's more than all the homes sold in the region last year.
Chen expects this so-called "shadow inventory" to start hitting during the second half of the year. The additional homes for sale will act as a drag on home prices, she said, likely meaning a return to price losses.
But she believes that the declines will be modest and that the long pullback in buying demand is over, as long as the employment picture doesn't worsen.
"It does feel like the market has started to turn around," Chen said. "What's key to keeping housing on track is that the economy stays on track."
Temporary or not, recent price stability has not gone unnoticed by would-be buyers. Online real estate brokerage Redfin said a third of the 1,200 customers it surveyed nationwide in May cited "prices may soon rise" as a reason they were looking to purchase a home this year. That's up from a fifth in February.
The top concern about buying this year: "low inventory."
Fernald, one of the survey participants, said it's not that hardly any homes are for sale. He sees "a lot of middle-ground houses that aren't worth the asking price." The shortage is in homes that would suit him and seem well priced.
The house he tried to buy in April had been on the market for more than a month, so he thought the sellers might take less than asking price.
"They then got three other offers," he said. "Ever since then, the houses we've had our eye on have been moving at a faster rate."
Because he's in no rush to move, Fernald can afford to be patient. But the experience has made him question his plan to rent out his current home. He bought in 2008 and figured he would have a hard time getting enough to cover the mortgage if he sold now. Now he's not so sure.
"If we're having trouble finding a house to buy, then maybe selling a house becomes easier," he said.