An increasing swath of the Baltimore region is caught up in a housing slump that is getting worse and appears to have further to fall.
Average home-sale prices in the first six months of the year fell in a little more than half of Baltimore's suburban communities and a third of city neighborhoods, while sales volume in the region was the lowest for the first half of a year since 2000, a Sun analysis found.
The number of areas with declining prices has swelled since 2006, the first full year of the housing market downturn. Many of the losses were fairly modest, but some areas were significantly affected.
In the well-to-do Anne Arundel community of Severna Park, for instance, average prices fell more than 10 percent compared with the first half of last year, to about $550,000. That is a $70,000 drop in a year.
Economists have said for months that prices cannot keep rising amid plunging sales, and now that basic lesson of supply and demand is being demonstrated. Not only did prices fall in more places than in previous periods, but areas with declining prices saw less severe drops in sales on average. A sizable chunk had sales gains.
Marc Witman, a partner with Yerman Witman Gaines & Garceau Realty, sees that as evidence that average prices in the region will have to fall further before sales pick up again. Prices would already be lower if sellers were adjusting fully to the new market conditions, he said. Prospective buyers are looking for bargains, and many are willing to wait.
They have plenty of possibilities to consider, as the number of homes for sale continues to rise.
"I call it Economics 101," said Witman, who is based in Baltimore County and has been a Realtor since 1989. "The buyers that are out there are sitting on the sidelines, saying, 'I don't see the value out there; I'm not buying.' ... If your house has been around for quite a while and it's not selling, it's the price."
Sales fell 10 percent in the Baltimore region in the first half of this year, with about 16,600 homes changing hands, according to Rockville-based Metropolitan Regional Information Systems Inc.
Worse for sellers, there were six homes on the market for every one that sold in the average month during the first half of the year. At the peak of the housing boom, the first half of 2005, there were about 1.5 homes listed for every sale.
"The market is saturated," said Dahlia Kaminsky, a Realtor with City Life Realty who does most of her business in neighborhoods near Baltimore's Patterson Park. (In the neighborhood north of the park, prices rose modestly, but sales fell more than 20 percent.) "It's a great time to be a buyer, let's put it that way."
The Sun analysis used sales data from MRIS, which tracks homes sold through the multiple-listing service - usually previously owned homes, though some are new. The analysis looked at suburban sales by ZIP code - a stand-in for communities - and city sales by neighborhood, comparing January through June of this year with the corresponding months last year.
Price comparisons aren't a perfect measure because people can sell markedly different homes in a neighborhood from one year to the next. To cut down on such skewing, areas with few sales were not included in the analysis. Suburban ZIP codes had to have at least 10 sales in each half-year period, and city neighborhoods at least five sales. But the percentage of areas where prices fell was consistent whether places were excluded or not.
Some regions are feeling the slump much more keenly than Baltimore and its suburbs, where prices rose slightly overall. A third of the 149 metropolitan areas that the National Association of Realtors tracked from April to June lost ground. But the Sun analysis shows that some Baltimore communities are doing much worse - and some much better - than the average.
"As the old adage goes, real estate is all local," said Celia Chen, director of housing economics at Moody's Economy.com, who thinks the Baltimore market as a whole won't pick up before the middle of next year.
Neighborhoods where prices increased were less expensive on the whole than neighborhoods where prices didn't. Baltimore City and Harford County, the least expensive jurisdictions in the area, had the most gainers, including some where prices were up more than 10 percent. Meanwhile, prices declined in a wide swath of expensive Howard County. And in nine out of the region's 10 most expensive suburban communities, average prices have dropped this year.
Most of those 10 communities posted higher sales, however, and some of the Realtors who sell very expensive properties say such homes are moving even better than usual.
"We're working with people in the $8 [million to] $9 million range, and they're primarily cash buyers," said Michael Hamby, an agent with Champion Realty in Annapolis.
At the same time, some suburban communities priced for first-time buyers - such as Randallstown in Baltimore County and Aberdeen in Harford County - bucked the trend with declines in prices and sales.
Miriam Kelly, a retired engineer from Lutherville, bought a house in Pikesville at the beginning of last year for $272,000, intending it for her elder daughter. But the daughter married and moved to Hawaii, so Kelly put the four-bedroom home up for auction this month. It sold for $246,000, a loss of nearly 10 percent.
Some sellers in that situation have to bring money to the settlement table to cover what they owe to their lenders. Realtors are beginning to see that happen. Kelly was fortunate that she didn't have a mortgage on the property.
"Look, you don't make money on everything," she said. "Prices are dropping simply because the interest rates are going up."
Interest rates below 6 percent helped fuel the five-year housing boom, which ended in 2005 as homes for sale began to outpace buyers. Rates haven't risen to where they were at the beginning of the boom, but prices have approximately doubled. That means fewer new buyers can make the numbers work.
Economists say the boom was also fueled by looser lending standards. More buyers qualified no matter what their credit, and an explosion of loans with adjustable rates, interest-only payments for the first few years and no down payments allowed people to buy houses they couldn't have afforded under traditional rules of lending.
Now, with foreclosures rising and lenders closing, the industry is tightening rules to the point that some would-be buyers are out of luck.
Down from asking
Sedgrick Williams, a steam fitter, figures the end to easy credit is hurting his efforts to sell a ranch-style house in Randallstown. He couldn't accept the one offer he has received because the buyer didn't have financing and seemed unlikely to obtain it in the current climate.
The three-bedroom home with a finished basement has been on the market a bit more than two months. Few people have come to see it. No one came to two of the open houses. Williams is asking $255,000, down $10,000 from his original asking price, and is offering to install appliances of the buyer's choice at his expense.
"I think I would have been better off if I sold last year," said Williams, 45. He paused, then added: "I definitely would have been better off."
He considered selling the house three years ago - during the boom - when he was moving from Randallstown to Cecil County. He got several offers the first day for more than his asking price of $140,000. He decided to keep the house as an investment property and rent it to tenants getting Section 8 subsidies from the government, but that hasn't worked out.
Now, he said, "I'm just hoping to sell this house as quickly as possible."
Dave Wright with Coldwell Banker Residential Brokerage in Annapolis, a Realtor for 31 years, thinks the market was worse in parts of the 1980s and 1990s. But there is no question that it is "challenging" now, he said.
It is challenging for first-time buyers because in the last few months it's become "much more difficult to get a mortgage," he said. And challenging for sellers, who are trying creative ways to differentiate their houses from all the others on the market - closing-cost help, condo fees covered, mortgage prepaid for a year, free boat slip rentals, even a brand-new Mini Cooper car.
Sellers' concessions, common before the housing boom, have become so significant that real housing values might be falling in more communities than the numbers show. That is because the effective price sellers are getting is lower than the selling price on the contract.
Realtor Laura A. Scott, buyer's department sales manager for the Pat Hiban Real Estate Group with Keller Williams in Ellicott City, is seeing give-backs equaling 3 percent to 5 percent of the selling price.
Charlotte Savoy, a partner at the Pat Hiban Real Estate Group, said the market is being buffeted by two competing forces, the "have-to" sellers and the "want-to" sellers. The have-to people are driving down prices in their effort to get their homes sold as quickly as possible, while the want-to sellers are driving up the average number of days homes sit on the market in their effort to get the price they want.
"I think a lot of people are choosing - and should be choosing - not to move unless they have to, or unless they can make it make sense," said Savoy, who has helped some have-to sellers find renters so that they are not stuck paying two mortgages. "If you get a great deal on something and you can afford to take a little bit less for yours, then that's a great scenario."
In Baltimore, the sales picture is complicated by the large number of investors who descended on the city during the boom to rehabilitate and resell homes.
"They just created more product than there are buyers," said Witman, the agent with Yerman Witman Gaines & Garceau Realty.
The result was that prices fell this year in some of the popular boom-time investor neighborhoods, including Canton and Reservoir Hill. But - probably not coincidentally - sales rose.
'Best on the block'
Jared and Emily Jaskot, who moved to Baltimore in July from a Washington apartment, bought from an investor in the Patterson Park area, another popular place for rehabilitation. Prices are still rising in that neighborhood, so Jared Jaskot was delighted to see the rowhouse needed work, from the roof to the pink-and-purple walls. Here, he thought, was a place where he could get a deal.
The seller was asking $200,000. The Jaskots and their agent got him down to $187,000 to account for the $13,000 that they correctly figured they would need to fix up the place. He paid their closing costs, too.
"I feel like it's the best house on the block," said Jared Jaskot, 27, who just graduated from Georgetown University's law school. "I'm sure we're going to be able to sell it for more than we bought it for, so I do think we bought it at a good time."
The seller probably isn't complaining either. In a down market, he sold it for about twice what he paid for it last year.
"He did all right in a year," Jared Jaskot said.