Housing decline hits area unevenly

The Baltimore Sun

Despite a nationwide housing slump last year, most communities in the Baltimore metro area weathered the soft market fairly unscathed -- and some posted hefty price gains.

Home prices declined in one out of six communities, but it appears there was no slump for a sizable part of the region. The striking split seemed less about location, location, location than about price, price, price.

Areas with declines were generally expensive, with homes costing $500,000 on average, while many of the fast-appreciating communities were more affordable, according to a Sun analysis of home sales data that offers the first detailed look at the post-housing-boom landscape. Half of the region's 10 most costly ZIP codes in 2005 saw a drop in average price last year, from Monkton in Baltimore County to Davidsonville in Anne Arundel.

Local real estate agents say they believe the market is on an upswing after months of sluggishness. January seemed to bear that out, with sales rising for the first time in more than a year just before the all-important spring season. But even last year, average prices increased at least 10 percent in a third of Baltimore's suburban communities -- and in a remarkable three-quarters of city neighborhoods.

Prices in half of the city's neighborhoods, in fact, jumped at least 20 percent.

"That just confirms what I see and what I hear," said Joseph T. "Jody" Landers III, executive vice president of the Greater Baltimore Board of Realtors. "We see pockets where there have been some slight declines ... but you continue to see some strong gains. ... You also have to put that into some historic context: For two decades, there was no price appreciation in many of these neighborhoods."

Westport -- a downtrodden Southwest Baltimore neighborhood slated for a huge infusion of new homes, offices and shops -- saw the average house price shoot up nearly 90 percent to about $90,000 as speculators descended.

In Mount Vernon, which has attracted Washington commuters with its historical architecture and proximity to Penn Station, the average price jumped 76 percent to $365,000.

But even in the city, price declines hit nearly two dozen of the 184 neighborhoods with enough sales for comparison. In Otterbein near the Inner Harbor, one of the priciest areas in Baltimore, the average seller got about 10 percent less last year than sellers in 2005 -- a difference of about $45,000. Prices had been pushing a half-million in 2005.

Collapse, correction

"It was the collapse in affordability that was the catalyst for the housing correction," said Mark Zandi, chief economist at Moody's Economy.com. "Those areas where prices are high and affordability low were the areas that got hit the hardest."

But not in every case. Glenwood in Howard County became the most expensive ZIP code in the region last year -- more than $1 million on average -- as prices rose roughly 40 percent.

Sometimes averages mask underlying factors. If homes sold in a community last year were markedly different from those sold the year before, that would skew the numbers. Values are more likely to rise quickly in neighborhoods with a big share of construction or high-end rehabs.

For comparison's sake, the Sun analysis included only those ZIP codes and city neighborhoods with at least 10 sales in each of the two years. The information comes from monthly reports by Rockville-based Metropolitan Regional Information Systems Inc. of homes sold through the multiple listing service. The company recently updated annual statistics at the county level but says it does not revise its monthly numbers, the only data that can be analyzed for community-level trends.

Last year was a turning point, the region's first full year of deceleration after a string of double-digit annual increases that had boosted average prices 80 percent since 2001. In 2006, the price gain slowed to just under 5 percent, and the number of homes sold declined 13 percent. As a result, listings have mounted, more homes are sitting vacant and some homeowners are juggling two mortgages.

Matter of timing

Frances T. Bond got blindsided by the turn in the market when she bought a townhouse condominium last summer, never dreaming it would take months to sell her Stoneleigh home of 41 years. She listed the Baltimore County property in July, didn't get a contract until December and won't settle until Wednesday.

"I could not believe my sense of timing was so poor," said Bond, an educational consultant, "because when I bought the condo, I didn't quibble whatsoever. She was asking for a certain price, and I said, 'OK, I'll take it.'"

Sales plummeted more than 20 percent in the county section of her ZIP code last year. For a while, she despaired. She buried not one but two statues of St. Joseph -- the Catholic patron saint of carpenters who is also thought to help with home sales -- in her yard. In the end, Bond lowered her price about $68,000 to $482,000, more than her $400,000 townhouse but not as much as she had expected.

Sales didn't drop everywhere. Deals increased in about one in seven suburban communities and nearly half the city's neighborhoods. Price didn't seem to be the determining factor overall. But the biggest increase came in affordable Franklin Square in West Baltimore, where sales more than doubled to 46 last year as prices rose to $95,000.

Real estate agents are reporting more activity across the metro area recently. Last month, sales rose for the first time year-over-year since September 2005.

"People are coming to us with that excited feeling again that 'I want to buy,'" said Ilene Kessler, president of the Maryland Association of Realtors and a ReMax agent who does business in Howard, Montgomery and Baltimore counties. "The perception is the bottom has already been hit."

Less sanguine view

Some economists aren't so optimistic. Zandi expects price decreases in the region this year -- about 5 to 10 percent. Richard DeKaser, chief economist at National City Corp., evaluated prices in nearly 320 metropolitan areas for signs of housing bubbles and says he thinks the Baltimore region is about 25 percent overvalued compared with its historic norms. (National City, which teamed with economic analysis firm Global Insight, says it believes 88 other metro areas are even more overpriced.)

Zandi notes that the U.S. housing-market slowdown accelerated in the last six months of last year. In the Baltimore region, nearly a quarter of ZIP codes experienced a decline in average prices in the last half of the year versus the second half of 2005, The Sun found.

John McClain, a senior fellow at George Mason University's Center for Regional Analysis, says that was likely the worst of it. He says he expects price gains of about 5 percent in the metro area this year.

"I think the bottom was this past fall and into the winter," he said. "I think we're beginning to come out now."

Melanie Kelleher, 30, felt the pinch of the increasing sluggishness the latter half of last year. She put her family's Canton home on the market in June after buying a new house in Baltimore County. Despite the Canton home's Jacuzzi tubs, marble floors and rooftop deck, it got no offers until last month, after she had dropped the price three times -- $76,000 in all. She sold it for $353,000, relieved to stop paying two mortgages.

The average price rose 3 percent in Canton last year, but Kelleher thinks values really declined when comparing similar homes. Hers was appraised at just over $400,000 in fall 2005.

Still, the time her home sat on the market, as it turned out, was almost exactly the same as it was the last time the house was sold, in 2001. And the sales price was 55 percent more than she had paid for it.

"It's hard to keep that in mind -- that you're not selling at the top of the market, but you bought at the bottom," said Kelleher.

A longer wait

Many sellers had a hard time adjusting, says Tom Hough, president of the Anne Arundel County Association of Realtors and an associate broker at Champion Realty. Most probably made just as much as, if not more than, they would have in 2005, he says, but they didn't get their asking price, and had to wait longer. He says he thinks sellers with very expensive homes were the most likely to see an actual drop in value.

The Sun analysis showed that average prices fell in a large swath of expensive southern Anne Arundel. In Davidsonville, land of mansions and the occasional farm, average prices declined 3 percent to about $730,000 -- down $25,000.

Bill Whitman, an agent with Long & Foster in southern Anne Arundel, wasn't surprised to hear it. Some of the decline doesn't show up in the numbers, he says. He sees many cases where a home is sold for a price that matches what it would have gone for last year, but the seller is paying $10,000 or $15,000 toward the buyer's closing costs. Effectively, he says, "they're getting 2 to 3 percent less."

But Whitman, an agent for 21 years, says this is nothing compared with the downturn in the early 1990s, when he remembers several waterfront properties nosediving 30 percent. Last year was slow, he says, but he's seeing an upturn.

So is Richard Watson of Long & Foster in Columbia. He says he had six or seven homes priced above $1 million go to settlement in a recent 45-day period, at least three of which had multiple offers. "We had an upsurge in December and January," he said. "I probably sold more expensive homes ... than in any other December and January."

Last year, the fuel for the market came from buyers looking for something cheaper. In the city, neighborhoods with average prices below $200,000 in 2005 rose more than 20 percent as a whole last year. Most of the neighborhoods with prices above $300,000 remained fairly flat or dropped.

Mount Vernon, which saw the city's second-biggest leap in price, averaged just over $200,000 in 2005 before shooting upward. Brendan Cooke, a Long & Foster agent who does a lot of business there, says the neighborhood has changed a lot in a few years. People rehabbed old rowhouses. Businesses opened. The area, once heavy with college students, has attracted more young professionals and empty-nesters.

Price appreciation aside, Mount Vernon homes are sitting longer as competition for buyers has risen, Cooke says. Sellers are more likely to offer closing-cost help.

But some homes are still flying off the market. Josh Asher, 30, a settlement attorney who works in Rockville, made an offer on his Mount Vernon condominium townhouse the same day he looked at it last fall. He bought it for about $250,000, nearly double what the previous owner paid three years earlier.

"I could tell there was a very high demand," Asher said. "I think the location really speaks for itself."


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