Higher mortgage rates kept some prospective buyers -- especially those hoping to move up to a larger home -- out of the market during the second quarter, driving new-home sales down 13 percent in metropolitan Baltimore.
The number of sales fell to 2,355, from 2,695 in April, May and June 1993, Legg Mason Realty Group Inc. said in a quarterly report. Sales during the first half of the year, which included a bitterly cold January, dipped 8 percent, to 5,428, compared with the first half of 1993.
"We did not get the winter traffic through the models because there was so much ice," said Clark P. Turner, president of the Home Builders Association of Maryland. "Then in the second quarter the interest rates were rising, and we're seeing results of the increase in those."
The interest rate on a 30-year fixed mortgage, which fell to below 7 percent last year, rose to almost 9 percent in the spring. Last week, it was at 8.5 percent.
In addition to being down from last year, second-quarter new-home sales in metropolitan Baltimore were off 23 percent compared with the first three months of the year.
According to Legg Mason, that was one of the greatest quarter-to-quarter drops in sales in the Mid-Atlantic region, which includes Maryland, Virginia, New Jersey and Pennsylvania.
For that reason, Mr. Turner said, something more than interest rate increases seems to be at work locally.
"We were off more than they were," he said. "That has to be more specific, and that could be a lack of job growth."
The state gained just 0.89 percent in jobs in the 12 months that ended in June, ranking it 46th in the nation in job growth.
"The housing market and job growth are so strongly linked," said Robert W. McGee, president of Keystone Homes Inc. and president of the Harford County chapter of the Home Builders Association of Maryland.
"We are not getting the kind of jobs growth in the recovery we experienced in other recoveries. And a lot of the jobs are not the high-paying jobs."
The drop-off between the first and second quarters was most pronounced in Baltimore City and Carroll and Harford counties, the report said. Sales were also down in Howard and Anne Arundel counties -- which captured the greatest share of the region's sales -- but not by as much. The two counties fared better because they tend to draw buyers employed in Washington, which has a stronger job market, builders said. Also, thousands of new homes are being built in three planned developments in western Anne Arundel County.
The sharply lower sales figures surprised David Seiders, chief economist for the National Association of Home Builders. He noted that single-family building permits, which usually mirror sales activity, were up 3 percent in the state and 16 percent in the Baltimore region for the first five months of the year.
"We knew there'd been a definite weakening of sales, certainly since late last year," Mr. Seiders said. "But I'm pretty darned surprised we'd have that much of a problem in Maryland and Baltimore." Sales of single-family homes have been hit especially hard recently, Legg Mason reported.
Rising interest rates have cut substantial numbers of move-up buyers out of the market, and second-quarter home sales in the $150,000 to $175,000 range plunged 43 percent compared with the first quarter.
More than half of the past few months' sales fell in the $75,000 to $149,999 range.
The market for buyers moving up to a second home began to dry up after last year, builders said. A rush of buyers had taken advantage of low mortgage rates and builders' promotional pricing -- help with closing costs and options such as finished basements included as standard features.
But the rush slowed as interest rates have risen and builders have offered fewer of those incentives. Builders said increased costs of supplies and building lots have made it more difficult to do so.