Falling mortgage interest rates will make home buying more affordable in 1996, but don't look for a hefty boost to Maryland's housing market.
The number of homes sold and built should just about keep pace with 1995, though economists' predictions vary. Some call for a slight increase as lower interest rates satisfy buyers' pent-up demand. Others expect housing activity to lag behind this year's, largely because of federal cutbacks that place Maryland in the bottom five states for job growth.
Through the end of November, 33,338 homes sold in Maryland, compared with 42,873 through November 1994, a 22 percent decline. Sales dropped each month until September in the Baltimore region -- which accounts for nearly half the state's share of sales -- and ended up off by 7 percent through November.
Sales of new and existing homes nationally are expected to mirror 1995's 4.45 million, said David Berson, chief economist for the Federal National Mortgage Association. Mr. Berson said he expects a somewhat weaker market in Maryland.
Interest rates on 30-year, fixed mortgages should continue edging down, averaging about 7 percent and fluctuating little, as long as the economy grows modestly and inflation remains in check, he said. Rates had risen about 2 percentage points during 1994, then slid down nearly the same amount this year, averaging 7.37 percent in the Baltimore region the week of Dec. 31.
"It's clearly positive any time rates go down," Mr. Berson said. "You've reduced housing costs, so affordability goes up. But [rates] are not the only thing affecting the [home buying] decision. The drop will roughly offset a slower economy, and Maryland is going to have one of the slowest economies in the country in '96."
Government cutbacks that have slashed defense-related jobs in the public and private sectors have led to a slowdown in new home construction as well in Maryland, said Stanley F. Duobinis, director of forecasting for the National Association of Home Builders. Anticipated budget reductions will likely continue that trend, especially in the Baltimore region, which had depended on manufacturing jobs during the defense buildup of the 1980s, he said.
Construction permits for single-family homes fell by 10 percent in the state and 14 percent in Baltimore during the first nine months of 1995 -- the latest statistics available. Mr. Duobinis predicts starts of single-family homes will increase 10 percent statewide in 1996, returning to 1994 levels. But at best -- if the economy remains relatively strong and interest rates continue their decline -- starts will fall by 5 percent in the Baltimore region, he said.
"The defense fallout continues to be a serious problem," Mr. Duobinis said. "A very large portion of the economy is a function of what's happening in D.C., and as long as we're in a cost-cutting, deficit-slashing mode, it's not likely the state will see a dramatic turnaround any time soon."
Others view the job growth picture as not quite so bleak and expect sales in the Baltimore region to remain flat or even rise as much as 3 percent in 1996.
"I think the extremely weak employment growth being reported this year is overstated -- it's not as bad as what we're seeing," said Michael Funk, assistant director of the University of Baltimore's Regional Economic Studies Program. "If anything, rates might fall a little lower, which would help the residential real estate market."
Those selling real estate likewise have been encouraged by lower rates.
"We still have a relatively low consumer confidence level that will be holding people back," said Arthur Davis III, the National Association of Realtors' regional vice president for Maryland, Virginia, Delaware, West Virginia and D.C. "But historically low interest rates are bringing a lot of people back into the market."