In the last half of 1993, home sales in the Baltimore area soared in defiance of seasonal patterns. But a repeat performance for the second half of this year appears unlikely, thanks to rising interest rates and diminishing pent-up demand.
With rates on 30-year mortgages climbing from 28-year lows last year to nearly 8.9 percent for the first time in more than two years, real estate agents and economists predict a slower, though steady, pace for the next six months.
"The real estate market will be hard-pressed to match [the second half of] '93," said Michael Funk, assistant director of the University of Baltimore's Regional Economic Studies Program.
"We saw a surge spurred on by the bottoming out of interest rates," Mr. Funk said. "We had mild weather and had been out of the recession for a year. It may be unreasonable to expect 1994 to perform as well because of higher rates and uncertainty. Most of the people thinking of buying already made a move."
Sellers may need more patience as homes stay on the market longer. Or they might need to lower price expectations as buyers shy away from the top of their qualifying range, real estate agents said. Buyers might see fewer homes listed for sale but can expect to negotiate better deals, agents said.
While sellers might justifiably have expected 96 percent to 97 percent of their asking price in the past few months, they now can more reasonably expect 94 percent to 95 percent. That could prompt some sellers to hold off putting their homes on the market, said Walter F. Mcguire, sales manager for O'Conor, Piper & Flynn in Towson.
"If you don't price [the home] right to give the seller a good return, buyers won't make a move, and sellers will be there months from now," Mr. Mcguire said. "The market has peaked out. We've reached the down side of the curve and are losing some of the activity." But he added, "there are a lot of good properties and a lot of motivated sellers. Sellers are negotiating more seriously in order to close deals, knowing rates are up and some buyers have been taken away from them."
Linda Bass Yaffe, a real estate agent with The Prudential Preferred Properties who sells in the Owings Mills corridor, urges her clients to look at their homes with a critical buyer's eye. She urges them to keep in mind the competition from impeccably decorated models in rapidly multiplying new-homes communities, where builders are enticing buyers with add-ons and lower rate mortgages.
"You just can't play around with your price," she said. "It's a really uncertain market, and you can't be so overconfident you have something so unique."
But new-homes builders don't necessarily have it any easier, saidRobert J. Lucido, president of Builders 1st Choice, a sales and marketing agency representing 50 builders and 80 communities in Baltimore, Washington and Virginia.
These days, some 15 to 25 builders might compete for sales in a three-mile radius, especially in the booming Owings Mills corridor, Mr. Lucido said.
"It's a very crowded market," he said. "The pie hasn't expanded, but the base has. There's no room for error. If a builder doesn't have everything right, he won't get that one-to-two slices."
At best, the second half of 1994 will meet the second half of 1993's sales levels, if rates remain fairly stable, analysts said.
"There is still activity, but it's not as strong as this time last year," said Arthur Davis III, president of Chase Fitzgerald and Co. and president of the Maryland Association of Realtors. "The second half should be steady, but not a great rush. There are an awful lot of people looking around and a nice selection of inventory, judging from what we're seeing. If we see an increase to a full point, it will have a dampening effect, but I don't see that happening."
Sales remained strong through June, climbing 12 percent compared with the first six months of 1993, despite harsh weather in January and February that kept many would-be buyers off icy roads and out of open houses.
Industry analysts pegged sales increases each month to pent-up demand, low interest rates and upward spikes in rates that pushed fence-sitters to finally buy. But as rates began creeping up, the number of home-sale contract signings fell -- by 1 percent in May and April, then by a sharp 13 percent last month, compared with the same months in 1993.
If rates continue to rise, fewer and fewer "fence-sitters" -- people waiting for ideal market conditions before making a decision -- will be left,said Paul Havemann, vice president of HSH Associates, a New Jersey firm that tracks mortgage rates in metropolitan Baltimore.
"Most people have gotten the message by now that rates aren't going down," Mr. Havemann said.
"We're going to see 9 percent at the rate things are going. Obviously, rising rates put a damper on the housing market and hurt affordability. But this time, if people are not wedded to the idea of a 30-year mortgage, they'll up their chances of qualifying."
Many buyers are choosing options other than 30-year, fixed-rate mortgages, said Ernest A. Moretti, president of the Maryland Mortgage Bankers Association. National figures showing that adjustable-rate mortgages accounted for 36 percent of all loans in May can be applied statewide, Mr. Moretti said. Still, the national association expects a 30 percent drop in the number of loans originated this year.
"Things have really slowed down. There's no question about that," Mr. Moretti said, with lenders "looking at reduced profits to keep employees onand hoping things turn around."
Local agents have seen sharp drops in numbers of first-time buyers, edged out of the market as rates have risen.
But some first-time buyers have been determined to get out of apartments where rents are increasing. Such buyers are looking for more creative financing and more affordable homes, real estate agents said.
For instance, some buyers are taking slightly higher-rate loans in exchange for credits of up to 2 percent on the sales price, which reduces the amount of cash needed up front, said Gayle Briscoe Wilson, vice president of Otis Warren Real Estate.
Rising interest rates haven't slowed home sales in the area of South Baltimore just south of Federal Hill.
Reconstructed rowhouses averaging $100,000 are selling 10 percent above last year, mostly to first-time buyers taking advantage of Community Development Administration low-interest loans, said Stephen H. Strohecker, a broker with Century 21.