Baltimore: 4-year low in home sales

Values in Baltimore rise, but pace slows.
Sales of existing homes fell more than expected in April while prices slid for a record ninth consecutive month, indicating further troubles ahead for the housing market.

The National Association of Realtors reported that sales of existing homes dropped by 2.6 percent last month to a seasonally adjusted annual rate of 5.99 million units, the slowest sales pace in nearly four years.

The median price of a home fell to $220,900, an 0.8 percent decline from the median price a year ago. The median is the point at which half the homes are sold for more and half for less.

In the Baltimore region, house values have continued to increase every month, though not at the double-digit rates registered during the height of the boom. The median price last month rose 2.61 percent to $275,000, according to Metropolitan Regional Information Systems.

But, as in the rest of the nation, Baltimore area home sales have been slumping for more than a year.

Last month, sales of homes sold through the multiple listing service sagged 11.23 percent from a year earlier. That was the fewest sold during any April since 2000, according to data from MRIS. Sales in Baltimore and the five surrounding counties have declined in 18 of the past 19 months.

The slide in existing home sales came after a report Thursday that showed a big 16.2 percent surge in sales of new homes in April that occurred as the median price of a new home fell by a record 11.1 percent from the previous month.

Analysts said the disparity in sales of new and existing homes for April reflected in part the decision by builders to aggressively cut prices to unload inventory while homeowners are still reluctant to lower their asking prices.

"The market is lousy," said David Sloan, senior economist with 4Cast, a market research firm in New York. "The overall economy is not growing particularly strong. The Fed is keeping interest rates reasonably high because it's worried about inflation. So I don't think much is going to change in the fundamentals of the housing market."

The supply of existing homes for sale shot up to a record total of 4.2 million in April, an increase of 394,000 from the March supply. Analysts predicted that this big inventory surge would act to further depress prices.

"We're swimming in supply," said Mike Larson, a real estate analyst with Weiss Research, who cited a number of factors for the unsold homes.

"Unrealistic sellers, stuck flippers, stretched borrowers, foreclosures. They're all contributing to a surge in homes on the market," he said. Flippers are investors who bought homes during the boom hoping to resell them for a quick profit only to be caught as the market softened.

Patrick Newport, an economist with Global Insight, said that the inventory bulge was "worrisome, since builders are less likely to start new homes as long as inventories are climbing."

A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories.

Curbs on subprime lending "are expected to be a source of some restraint on home purchases and residential investment in coming quarters," Fed Chairman Ben S. Bernanke said May 17. Even so, Bernanke said he doesn't foresee "significant spillovers" from the subprime market to the rest of the economy.

Housing enjoyed an extended surge in which sales of both new and existing homes set records for five straight years until 2006. The Realtors are forecasting that existing home prices could decline by around 2 percent this year, which would be the first setback for an entire year on records that go back four decades.

But Lawrence Yun, senior economist for the Realtors, noted that the expected price decline would be modest in comparison with the 50 percent appreciation in home prices that occurred during the boom period.

It had appeared that housing sales might be hitting a bottom at the end of last year. However, since that time, the troubles in the mortgage market, which has seen many subprime lenders forced to stop operations, has worsened the housing downturn.

"We've been anticipating slower home sales because many subprime loan products are no longer available," Yun said. "Fortunately, a wide availability of conventional mortgage products ... will help stabilize the market going forward."

Yun said the big rise in unsold homes on the market could be an indication that sellers are testing the market in the early spring in hopes of selling their homes and moving up to larger units, which he said would be a positive sign of a rebound in housing.

But other analysts were not so optimistic, expressing concerns that housing could remain under downward pressure for the rest of this year and stage only a modest recovery in 2008.

"The continued decline in existing home sales and the huge rise in inventories put in doubt the hopes that the housing market is stabilizing," said Joel Naroff, chief economist at Naroff Economic Advisors.

The troubles in housing have acted to depress overall economic activity, which slowed to a growth rate of just 1.3 percent in the first three months of this year, the slowest economic growth rate in four years.

For April, sales of existing homes were weak in all parts of the country. The Northeast experienced the biggest decline, a fall of 8.8 percent in April from the March sales pace. Sales were down 1.7 percent in the West, 1.2 percent in the South and 0.7 percent in the Midwest.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and other items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts. (baltimoresun.com)