Newly signed contracts for home purchases plummeted more than 30 percent in May compared with a year earlier in the Baltimore metro area, a worrisome first glimpse at how the housing market is faring without the support of an $8,000 federal tax credit for first-time buyers.
Regional housing numbers released Thursday also pointed to other challenges for sellers: Average year-over-year sale prices fell nearly 3 percent, and the number of unsold homes on the market rose to an 18-month high.
Economists had predicted a tax-credit hangover nationwide. The money — intended to inject life into a depressed housing market — gave people who might have bought later in the year an incentive to make an offer by April 30. Whether the decline last month is temporary or long-lasting remains to be seen.
The 1,839 contracts signed in the metro area represent a more than 11-year low for the month of May, which is as far back as Metropolitan Regional Information Systems' numbers go. The slowdown between April and May was especially stark: New contracts fell more than 50 percent.
Celia Chen, a housing economist at Moody's Economy.com, expected a decrease but said the result seemed "surprisingly large."
"That's a big drop," she said. "It does add a little bit of nervousness [about] the outcome for the rest of this year. If there's not much of a rebound from this decline … then I think sales will end up being much weaker than we had initially expected. But I'm still hopeful."
Chen said low mortgage rates and job gains should support home sales down the road. Much depends, though, on how strongly the economy recovers. Almost all the U.S. jobs added in May were temporary positions to support the 2010 Census effort.
Cindy Ariosa, who manages the Baltimore and southern Pennsylvania region for Long & Foster, said her agents definitely felt the end-of-credit pinch: from 2,001 contracts signed in April to 913 in May.
But activity is heading upward again, she said. One of her larger offices, which went from 300 appointments a week for home showings in April to 150 a week in May, is now at 200 weekly showings.
"It's absolutely a result of the interest rates, a decline in the rates," Ariosa said. "Those people that did not get the $8,000 can probably save more than $8,000 in the mortgage payments."
Sales figures don't yet fully reflect the tax-credit drop-off, because home buyers who received them have until June 30 to go to settlement on their contracts.
Closed deals in May rose 26 percent versus a year earlier in the Baltimore metro area, a slowdown from the 35 percent year-over-year jump in April, Metropolitan Regional Information Systems said. The Rockville-based firm runs the region's multiple-listing service, which is used to buy and sell homes.
Josh Ryan, 26, is feeling pretty good about his chances as a new seller. Homes comparable to his in Charles Village have sold for more than his $250,000 asking price in the past month.
"We've really been seeing a lot of houses moving," he said.
But Eric Pahon, 32, who put his Brooklyn Park home on the market just as the tax credit expired, is frustrated by the lack of activity. No one's made an appointment to see his place, despite all the work he's done since buying at the end of 2007 — renovating the bathrooms, upgrading the kitchen, finishing the basement and adding a fourth bedroom.
"I bought the house when they said the market could not possibly go any lower, … which wasn't true," said Pahon, an Army instructor being transferred to North Carolina at the end of the year. He's lowered the price from $317,000 to $299,900.
The challenge for sellers is that more of them are competing for buyers' attention. The number of homes for sale in the metro area topped 19,000 last month for the first time since the end of 2008, reflecting a surge of hopeful sellers entering the market right before the credit expired and another 4,200 coming on board afterward.
"I still fundamentally believe we're not going to see any stabilizing … until you see inventories come down to a level that's equivalent to demand," said Joseph T. "Jody" Landers III, executive vice president of the Greater Baltimore Board of Realtors.
In the meantime, prices continue to fall — good for buyers, bad for sellers. Last month's average price across the metro area of about $272,000 is a $44,000 drop from two years ago.
Richard J. DeKaser, a housing-market researcher, once called the Baltimore area overpriced but says that no longer seems true.
"The Baltimore market is now undervalued on a fundamental basis," said DeKaser, president of Woodley Park Research in Washington. "It may not be comforting news for those who own homes, but for those who are looking to get into the market, it should be a comforting signal."
jamie.smith.hopkins@baltsun.com