Castle Key Blog

For several months, economists have wondered why Maryland’s housing market has remained so resistant to material improvement when other aspects of economic life have been associated with an aggressive return to normalcy.  In early March, the Bureau of Labor Statistics ratcheted down estimates of job growth in Maryland.  According to the revised data, Maryland added just 11,300 jobs in 2010, or 0.5 percent, compared to earlier estimates of 26,000 jobs, or 1.0 percent.  In fact, if one views the revised data as credible, the implication is that Maryland added jobs less rapidly than the balance of the nation last year.  That said, between January 2010 and January 2011, home sales in Maryland rose 4.1 percent, consistent with the slow pace of recovery.  Thirteen of Maryland’s twenty-four jurisdictions experienced sales increases in January on a year-over-year basis.  In February, unit sales were up 5.0 percent in Maryland, with fourteen jurisdictions experiencing sales increases.

While the number of home sales in January were up, median sales price was down 4.5 percent statewide in January on a year-over-year basis. In February, this figure swelled to -11.7 percent, with nineteen Maryland jurisdictions experiencing median price declines that month.  For instance, in Baltimore City, median sales price declined from $109,890 in February 2010 to $53,000 in February 2011, an indication that sales are now largely being driven by a combination of plentiful distressed real estate and a growing number of opportunistic investors.

Average sales price in Maryland declined 3 percent between January 2010 and January 2011, and fell 8 percent between February 2010 and February 2011.  The acceleration of year-over-year price declines in February is perhaps in indication that distressed properties are now being more aggressively transacted upon, which in the short-term produces unattractive price performance, but ultimately accelerates the arrival of stable market equilibrium.  The active inventory of unsold homes is presently higher than it was a year ago.  Based on February unit sales, this represents more than 11 months of supply.  According to most real estate analysts, home prices do not begin to rise until supply levels reach a 5-6 month inventory.  Consequently, sellers have as a group been more likely to respond to market realities by lowering “asking” and ultimately “sales” prices.

In conclusion, the economy gained momentum during the latter stages of 2010.  This momentum translated into surprisingly strong holiday sales and vehicle purchases.  The consumer is now expressing a growing sense of optimism despite recent increases in gas price.  Unemployment remains stable.  Moreover, with a growing number of buyers expressing concern regarding the trajectory of mortgage rates, the key spring selling season may be better than many people expect as increasingly confident consumers step off the sidelines in advance of potential mortgage rate increases.  That would help lower the inventory and perhaps create stable market prices by sometime later this year.  Unfortunately, with the number of distressed properties remaining large, the implication is that even solid spring and summer sales may not be enough to establish a stable housing market equilibrium in 2011.

(Summarized from economist Anirban Basu’s article by the same title in the April 2011 issue of “Maryland Realtor”.)