After spending two years as the economy's brightest star, housing sales are expected to fall this year. With mortgage rates near record lows and poised to rise, the real estate forecast is that sales have nowhere to go but down.
Even so, most economists and real estate brokers in Maryland believe that the market will remain strong because the housing supply is so limited. There are more buyers than sellers and the phenomenon shows no signs of waning, given land-preservation concerns and an influx of Washington-area workers.
Most economists believe that 2003 will provide healthy home sales because mortgage rates will not rise much higher than 7 percent for 30-year fixed rates. But housing experts caution that values will not rise as fast as in the past.
"It's highly unlikely that we would have another record year," said Celia Chen, a senior economist who studies the housing market for West Chester, Pa.-based Economy.com and has placed the Baltimore area on a housing risk list of areas that may be overvalued. "Even though mortgage rates will remain historically low, that won't spur the activity in homebuying that we have seen during the past few years."
Chen predicts that home sales across the country will fall 6 percent to 6.1 million units this year. Chen said the figures still would make this year the third best in history behind the previous two years when 6.5 million and 6.2 million homes were sold, respectively.
Real estate agents look to people such as 22-year-old Tangela Robinson of Hillendale who is in the market to buy her first home. A renter during the past two years, Robinson believes that her mortgage payments would be about the same as her monthly rent, given the current interest rates. She recently attended a first-time homebuyers seminar held by the Neighborhood Housing Services of Baltimore.
"I want to get started early in life and build some equity," said Robinson, a Baltimore County paramedic and firefighter. "I'm looking at it as a good investment."
The Mortgage Bankers Association of America predicts that 30-year fixed mortgage rates will tick up during the next two quarters but still remain below 6.5 percent. The group expects rates to rise to 6.8 percent during the second half of the year.
In Maryland, inventory concerns continue to keep housing prices rising as land-preservation worries have resulted in a limited supply of lots in the Baltimore metropolitan area.
Builders said they expect to build fewer homes this year, in part because of the inventory concerns. That means they expect prices to rise as well, given the laws of supply and demand.
"The limited inventory remains a key thing in this region," said John Kortecamp, executive vice president of the Home Builders Association of Maryland.
Housing values in the Baltimore area are up 17.25 percent from a year earlier. While real estate agents said demand for homes remains brisk, houses are not moving as quickly as they did last summer. However, pending sales, a good gauge of future contracts headed to settlement, continued to rise from a year earlier.
But housing values are not rising as fast as they have in the past. Freddie Mac economists are projecting that home values in the Maryland area will rise between 3 percent and 5 percent in the next two years. That compares with an average rise of 10 percent in the past year.
"It's unrealistic to expect house price growth rates of 10 percent year after year in a market where family income growth is maybe 4 percent a year," said Frank Nothaft, Freddie Mac's chief economist. "So I think we're going to see a deceleration of the rate but not a decline."
Chen of Economy.com said she believes that Baltimore-area homes are overvalued, and she has placed the region in fifth place on a risk list that studied income, employment and other factors. "It makes Baltimore look a little bit risky," Chen said.
Concerns that the nation's housing is overvalued have been a topic of conversation among real estate professionals and economists during the past two years. Some economists said the Baltimore-area remains strong, however.
"I don't think Baltimore is going to see much of a decline, and it may not see any decline at all," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C. "That's because of what's going on in Washington and Northern Virginia. It's not that hard to live in Baltimore and commute to D.C."
Some agents said houses in some neighborhoods still command top dollar; there just aren't as many buyers as they attracted in the past.
And mortgage bankers are watching foreclosure rates, which reached record numbers in the third quarter of 2002. Some economists said a combination of refinancings and homebuying has extended credit to some who have recently lost jobs and can't afford payments. Maryland ranked 14th in the nation in terms of foreclosure rates in the third quarter at 1.39 percent of all loans. Given the record year that buyers brought to 2002, real estate agents in the area said they have been careful to tailor reasonable sales goals for 2003.
Coldwell Banker Residential Brokerage is projecting a reduction of 4 percent to 5 percent in sales figures from this year. But Coldwell executives said the same thing last year only to see mortgage rates fall even further.
"If there was a bubble, it already would have happened," said Thomas M. Stevens, president of Coldwell Banker's mid-Atlantic region. "It's a solid motivation why people are buying homes.
"They're putting a roof over their heads. So the house that is worth $420,000 today isn't going to be worth $310,000 tomorrow."