Homebuyers betting on Baltimore again

LAST MONTH, Robert Lucas won the Nobel Prize in economics for his idea of "rational expectations."

Loosely put, the theory holds that people aren't dumb, that they know where their economic interests lie and that they adroitly pursue those interests without regard for the desires of policy-makers or the opinions of experts.


So far this year, 3,513 people have bought houses in Baltimore. Most of them probably sank life savings into the deals, expecting that city roofs would keep their assets warm, dry and accruing.

Whether those expectations are rational is a matter of some debate.


The city has been losing residents since 1950, when nearly 950,000 people lived here. The middle class continues to bug out, pushed by crime and school worries, census experts say. This year, the city's population is expected to slip under 700,000.

Economics textbooks have something to say about supply, demand and price.

The gist is, don't put your money into something nobody else wants. Baltimore houses, then, would not seem to be candidates for Money magazine's list of Top 10 Investments for $10,000 Now.

But can 3,513 homebuyers all be wrong? Is Anthony Gambino Jr. wrong?

A lifelong resident of Baltimore County, Mr. Gambino, 35, and wife Lynette, 28, sold their Reisterstown condo this year and paid $110,000 for a 100-year-old, three-floor rowhouse in Baltimore's Canton section. And moved in.

They're thrilled. For many reasons, it made economic sense for them to flee the suburbs and throw their lot in with the city.

And, it can be argued, the same reasons will continue to make sense to many others.

First of all, Mr. Gambino's house would have cost $60,000 more -- 55 percent -- had he bought it in Baltimore County, he said.


It's a good estimate. County home prices average around $130,000 these days, according to Realtors. City homes average $70,000.

You couldn't build Mr. Gambino's home for $110,000 these days, not with its brick walls, fireplace, oak floors, solid doors and fenced yard.

True, tax rates are higher in the city. But don't miss the big picture. Discounts on city house prices compensate for higher tax rates. The annual tax bill on the Gambinos' $110,000 city house is only $582 more than on a $170,000 county house, if you apply the basic state and municipal rate to each.

And the mortgage service, assuming 5 percent down and an 8 percent, 30-year note, is $5,019 a year less in the city.

Baltimore's Mayor Kurt L. Schmoke has been trying to gradually reduce the city's tax rate to make houses more affordable. But the market, as markets will, has already factored the higher taxes into prices.

So far, the Gambinos are $4,437 ahead. Insurance costs more in the city, but not that much more.


And even if fiscal factors were a wash, the city yields other assets, rich but intangible, for which the Gambinos and people like them gladly pay. Culture. Restaurants. Closeness to work.

"The city is so busy. It's busy," Mr. Gambino said. "You have so many types of people from so many different cultures. It offers a great social aspect. You just have that -- I don't know -- that experience.

"Tourism is growing. The Convention Center is being built. The NFL franchise is coming back. The Inner Harbor, Camden Yards, you name it. The city has a dozen or more national-draw monuments. A lot of people come into this town because it's clean and it's pretty well run."

Crime is a concern, but "crime in the county is as bad," he said.

Schools. Well, schools are something else. Mr. and Mrs. Gambino will look very closely at the quality of city schools once they start having children in a few years, he said.

Poor public schools, or at least perceptions thereof, are the city's biggest flaw. But, while Baltimore's schools don't seem to be improving, they soon may be less of a deterrent.


Demographic changes are why.

The baby-boom population bulge has possibly been the single biggest factor affecting the U.S. housing market in the last 50 years. The suburbs were created to help World War II vets house their growing families. The huge jump in home prices between 1975 and 1990 can be blamed directly on the glut of boomers buying their own shelter.

Now boomers are starting to turn 50 and occupy empty nests. Having educated their children, many are moving back to the city for its many charms, real estate agents report. There's no reason to believe that they won't continue.

Home sales in the city jumped by 22 percent last month compared with October 1994. The city is the only area municipality to have booked home-sales growth so far this year.

Urban analyst David Rusk believes that Baltimore, sullied by crime, weakened by job evaporation, atrophied by population loss, has reached "the point of no return" economically.

The Gambinos are ignoring him.