Lower mortgage rates predicted That could be tonic for a housing market lagging behind nation


OCEAN CITY -- Maryland's housing market is expected to continue lagging behind the nation's for at least a year, but lower mortgage rates should keep home buying steady and spark renewed interest in refinancing.

Real estate agents and brokers from around the state got a mixed bag of economic news yesterday, with a welcome prediction of lower interest rates tempered by forecasts of slow employment growth, below the national average.

"The national economy has entered into a fairly static, steady period of slow growth, with low interest rates and low inflation," said John A. Tuccillo, chief economist for the National Association of Realtors.

That means rates on 30-year fixed mortgages should slide through the end of this year and into 1996, dipping as low as 7 percent, he said. In the Baltimore region, 30-year rates averaged 7.71 percent last week.

"There is room for long-term rates to drop," Mr. Tuccillo said, addressing the 43rd annual Maryland Association of Realtors convention. "But interest rates are not the story. With all the loan products available and interest rates moving in a narrow band, the story is employment."

Maryland's job growth has suffered because of the heavy concentration in government employment, he said. The state is expected to lose 3,000 public sector jobs this year. Another 6,000 jobs held by Marylanders working in Washington will be lost as well, he said.

"You can never get real estate away from employment," he said. "If employment grows, the demand for real estate grows."

Layoffs and early retirements across the state are creating an uneven housing market, with the Washington metropolitan suburbs bearing the brunt of a sales slowdown and other areas reaping the benefits.

The Eastern Shore, for one, already is beckoning many of those forced into early retirement. Retirees are likely to settle near areas where they've vacationed for years, creating a sales and construction boom outside nearly saturated Ocean City, in places such as Easton, St. Michaels and Cambridge, he said.

The Baltimore area has been affected to a lesser degree by government downsizing, Mr. Tuccillo said. Even so, home sales have been in a slump for more than a year, falling more than 20 percent in January, February and April. In recent months, the area has seen less severe declines, the latest a 3 percent dip in August.

In his comments to Realtors, Mr. Tuccillo indicated that a 6 percent growth rate in retail sales could signal trouble for home sales, as consumers devote more income to repaying debt.

Another worrisome sign has been a build-up in business inventory, which could lead to cutbacks in production and then employment.

Despite a drop in employment growth nationally this year, consumer confidence has been on an upswing, Mr. Tuccillo noted.

"It can overcome a little of employment anxiety," he said. "Consumers are very confident. Do they have the right to be confident? That's unclear."

Some 1,000 MAR members gathered for the three-day conference at the Ocean City Convention Center. The conference concludes today.

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