Maryland's housing market took a beating in the spring selling season, recording one of the biggest drops in sales in the nation.
Homeowners in the state sold 21.1 percent fewer homes during the second quarter than they did a year earlier, the National Association of Realtors said yesterday. That was nearly double the 10.8 percent drop for the nation as a whole. The numbers, which track existing homes, are annualized and adjusted for seasonal variations.
Despite the steep sales decline, pricing in the Baltimore metropolitan area held up. The median price of a single-family home gained 3 percent in the April-June quarter over the same three months a year earlier, according to the association. Nationally, prices fell 1.5 percent.
The slump in sales in the April-June period preceded the current turmoil in the mortgage industry, which was ignited by failures in subprime loans made to buyers with shakier credit. Now, as foreclosures mount and more lenders go out of business, it has become harder to qualify for a mortgage, narrowing the pool of potential buyers.
That's a sharp contrast to what happened during the housing boom, when relaxed lending standards and the proliferation of adjustable-rate, interest-only and other nontraditional loans led to rising sales and prices.
"All of us were on a nice bubble, and everybody was waiting for that bubble to fizzle," said Thomas C. Shaner, executive director of the Maryland Association of Mortgage Brokers. "Well, it popped."
Lawrence Yun, senior economist with the National Association of Realtors, thinks prices in the Baltimore area are holding up because the economy continues to create high-paying jobs.
"There's not a panic in the market," agreed John McClain, senior fellow at the Center for Regional Analysis at George Mason University. "There are still people out there who need to live here because we still have job growth."
But sales might be better if prices were dropping.
Maryland home prices doubled from 2000 to 2005, an unusually big gain even for the U.S. boom years. Incomes didn't rise nearly as fast. With half the homes now selling for more than $325,000, some would-be buyers just can't make the numbers work.
"Affordability has been eroded," said Celia Chen, director of housing economics for Moody's Economy.com. "If prices are not falling off, that's going to constrain sales."
She thinks the local housing market probably won't improve until the middle of next year, and that's assuming no more nasty surprises.
"Conditions can easily become much worse than we expect because of all the issues arising right now in the mortgage markets and financial markets," Chen said.
Only Florida, Nevada, Arizona and Tennessee saw bigger decreases in second-quarter sales than Maryland. Florida - a state that, like Maryland, recorded some of the biggest price increases in the country during the housing boom - had a 41 percent slump in sales.
In all, 41 states plus the District of Columbia recorded declines.
Maryland's annualized sales pace in the second quarter was just under 93,000 home sales, compared with about 118,000 the same time last year, the National Association of Realtors said.
Existing homes aren't the only part of the market feeling the pinch. The National Association of Home Builders said yesterday that its index of builder confidence for August fell to its lowest level since the recessionary days of January 1991. Builders say the credit crunch is causing problems not only for borrowers with shaky credit but also for prospective buyers who need "jumbo" loans of more than $417,000.
It's hardly helpful for expensive markets such as Howard County. Nearly half the existing homes in Howard are selling for more than that price, let alone the big new homes.
"That's a scary thought," said Pat Hiban, an associate broker at the Pat Hiban Real Estate Group with Keller Williams Realty in Ellicott City. With interest rates on jumbo loans rising, some would-be buyers are reconsidering whether to purchase a home, he said.
Yun said mortgage troubles will hold back demand during the short term. But he said the subprime bust has propelled buyers with less-than-perfect credit back to loans insured by the Federal Housing Administration, a segment of the financing market that was all but abandoned during the go-go days of the boom.
He expects small gains in prices in the Baltimore area in the near future.
Yun noted signs of nationwide improvement in prices during the second quarter with 97 metropolitan areas out of 149 showing year-over-year gains in price, up from 83 in the first quarter and 68 in the fourth quarter of last year.
But Chen thinks some of the second-quarter increases were artificially high. Median prices might have been skewed upward by a drop-off in sales of cheaper homes, she said, because the subprime market was in trouble before interest rates rose for jumbo loans.
"The lower end of the housing market is falling off quickly, more quickly, because of all the problems of the subprime lending market," Chen said.