The local housing market ended its second full year of the downturn in a worsening slump, with year-over-year sales in December falling 30 percent for the fourth month in a row.
In all, sales in the Baltimore metro area dropped about 20 percent last year, according to a Sun calculation of preliminary numbers from Metropolitan Regional Information Systems Inc. That's a bigger decrease than the region saw in 2006. About 30,000 homes changed hands, the lowest in nine years - which is when MRIS began tracking area sales through the multiple-listing service.
The average price still managed a gain over the previous year, but the increase of nearly 2.5 percent was the smallest on record. With large numbers of unsold homes competing for attention and mortgages harder to come by, economists warn that 2008 could be a year of falling prices here and nationwide even if demand picks up.
"Lenders are just being very conservative now," said Celia Chen, director of housing economics at Moody's Economy.com. "Many households that were able to buy homes before 2007 were able to do so because they took out these subprime mortgages or mortgages with creative ways of financing your home, and these products are simply not available anymore."
The full picture for 2007 won't emerge for another month. That's when MRIS expects to release its year-end tally. It could revise the figures The Sun used for the preliminary count; last year, sales were adjusted upward while prices dropped.
The early look at the year shows the average price at $317,000 in the metro area. Home sales dropped to their lowest level since 1998, when nearly 29,000 homes changed hands. U.S. numbers aren't yet available for 2007, but the National Association of Realtors expects a 13 percent drop - not as severe as the Baltimore area's.
For local sellers, the problem hasn't been merely falling demand. Supply rose, too.
The average number of unsold homes in any given month last year topped 18,000. That's by far the largest number on record. It would take 10 months for all the unsold homes to find buyers at the pace they were moving in December, compared with three months at the end of 2005, when the slowdown began.
There's some good news amid the gloom, says Keith T. Gumbinger, a vice president with financial publisher HSH Associates: "With prices softening up, with interest rates remaining reasonably favorable ... and incomes still rising somewhat, the affordability gap has begun to narrow."
Would-be buyers are noticing the change.
Kenneth D. Ray wants a city home with a ground-floor bedroom for his grandmother and a price he can afford, around $120,000. After almost a year of looking, he's seen about 30 homes, all in bad shape. But he remains optimistic because he's noticed that asking prices are falling.
One home that started at $250,000 is down to $199,000, he said. With luck, something decent will drop into his price range.
"I think it's just a matter of time," said Ray, 48, a custodian at the Johns Hopkins University. "I do have the patience."
Prices rose so rapidly during the housing boom - nearly doubling between 2000 and 2005 - that a burgeoning number of buyers got priced out. Economists say some of the boom's later increases were driven not only by low interest rates but also by looser lending practices that allowed people to stretch themselves to the limit and beyond, including no down payments, interest-only loans and mortgages that didn't require income verification.
Now subprime and other "exotic" loans have all but disappeared because lenders - pummeled by rising foreclosures - pulled back. They want good credit risks and more money down.
Melissa Talbot, 29, and husband Aaron were buffeted by the changing mortgage winds last fall. Just before they put in a bid on a condo in October, their bank canceled the no-money-down program they were planning to use. They ended up borrowing from their retirement funds and going with a lender requiring a 5 percent down payment.
Since they moved in, the lender stopped offering that program, too.
"I'm really glad we were able to buy when we did, because I'm not sure we could afford it now," said Melissa Talbot, who works for the Social Security Administration.
She was also struck by the level of competition for nice homes around $250,000, the price they wanted. Any home that looked like "a really good deal" kept getting bought out from under them. The Talbots finally snapped up a condo in Howard County for just under $250,000, down $30,000 from the price the seller had originally wanted.
Baltimore City is seeing a similar trend, with sales activity strongest in the more affordable northwest and northeast while pricey homes - and pricey waterfront neighborhoods - struggle, said Keith L. Cross, a Realtor at Century 21 Downtown.
He's noticed an overall pickup in business recently, and he thinks that renters who took short-term leases while keeping an eye on housing trends are getting back in the game. "More buyers are starting to get serious," Cross said.
But Chris Traczyk, a new Realtor with Long & Foster, keeps hearing from his buyers that they want to continue looking and wait for better deals.
He's certainly hoping for an upswing in demand: He's rehabbing city homes with a partner, and it's starting to look like a break-even situation at best. A house they renovated south of Baltimore's Ashburton neighborhood has drawn no offers since it went on the market three months ago.
The first asking price was $325,000. That dropped to $286,000. Now Tracyzk is asking for $260,000.
"It's probably going to be a loss," he said.