Region's home prices slip

The Baltimore Sun

Home values in the Baltimore metro area dropped this summer for the first time in nine years, according to a government measurement released yesterday.

The Office of Federal Housing Enterprise Oversight's house price index showed only a tiny decrease for the area in July through September versus the previous three months - about two-tenths of 1 percent, practically flat. But Baltimore hasn't seen a decline in the index since spring 1998, and the measurement doesn't include segments of the market that are being buffeted the most now.

It is the latest in a string of dour signs for the housing market, locally and nationally. The OFHEO index also showed the first nationwide quarter-over-quarter drop in years - since 1994. The agency said that many of the communities and states seeing the biggest losses enjoyed the largest gains during the housing boom.

The market has been downshifting since late 2005 but took a sharp turn for the worse this summer, when rising foreclosures caused by market conditions and several years of loose lending practices pressed mortgage companies to abruptly tighten up.

"Prices are weakening in most parts of the country," said Andrew Leventis, senior economist with OFHEO. "It looks like Baltimore's deceleration is happening at roughly the same pace as the deceleration in the rest of the country."

Maryland saw prices drop about four-tenths of a percent, the 12th-biggest quarterly decline among the states. Michigan and Florida topped the list with drops of more than 2 percent.

The OFHEO index, unlike numbers reported by the National Association of Realtors, captures changes in average values by tracking repeat sales and refinancings of the same single-family houses over time.

But it counts only conventional, conforming mortgages - nothing above $417,000, no FHA or VA loans and few subprime products.

Much of the disruption in the mortgage industry has hit jumbo loans for higher-end properties and the subprime mortgages aimed at buyers with imperfect credit.

As a result, OFHEO is showing milder price drops nationwide than other measures, said Celia Chen, director of housing economics at Moody's

"They're all suggesting that prices are collapsing, and OFHEO prices are starting to fall," she said.

Because Baltimore-area prices rose nearly twice as much as for the nation as a whole in the past five years, according to OFHEO's calculations, "there may be more of a decelerating coming during the correction," Chen said.

Investment banking firm Goldman Sachs is especially bearish.

In a research note last week, it predicted national price declines approaching 15 percent over the next several years - and said Maryland is one of the "worrisome" areas it thinks are overvalued by more than 30 percent. Six other states plus Washington were also on its list.

John McClain, a senior fellow at the Center for Regional Analysis at George Mason University, does not agree.

McClain thinks the Baltimore housing market won't see as large a downturn as the nation on the whole. The economy is stronger here, he said, with steady job growth that creates a need for more homes.

"The OFHEO index captures the biggest part of the market by far, and it says that house prices are not in the tank," he added. "Prices are flat."

Economists have warned that signs of a worsening housing slump are scaring away some buyers.

But Cynthia Clark, homeownership adviser with Neighborhood Housing Services of Baltimore Inc., a community revitalization group, said yesterday that she is seeing more enthusiasm from potential homebuyers.

Discouraged by how rapidly prices outpaced income during the boom, they now feel their time has finally come.

"I think that they're just getting re-energized to move forward now, with the market changing," Clark said.

Biggest drops

States that saw the biggest drops in house prices in the third quarter of the year, compared with the second quarter:

1. Michigan -2.5%

2. Florida -2.1%

3. California -1.8%

4. Massachusetts -1.7%

5. New Hampshire -1.5%

12. Maryland -0.4%

United States - 0.4%

[ Source: OFHEO]

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