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NAR economist says Baltimore housing has bottomed out

By Jamie Smith Hopkins

Sun reporter

January 15, 2008

The National Association of Realtors' chief economist told local real estate agents yesterday that he believes the Baltimore housing market has hit bottom and 2008 should be a better year - assuming buyers don't sit on the sidelines, anticipating major price drops.

"This area will be very interesting to watch because there's very solid economic growth, but people aren't buying homes," said Lawrence Yun, the economist. He added: "Ten years from now, people will look back at 2008 and say, 'Wow, that was a great time to become a homeowner.'"

The Greater Baltimore Board of Realtors, which brought Yun in to speak to a packed hotel conference room, said yesterday that it will team up with other local Realtor groups in the metro area on a $50,000 media campaign with that "great-time-to-buy" message.

But other economists aren't so optimistic.

Anirban Basu, chief executive of Sage Policy Group, a Baltimore economic and policy consulting firm, said yesterday in an interview that he's sticking to the forecast he gave the Home Builders Association of Maryland: No bottom until next year.

"This year I expect to be the year of the falling prices," Basu said.

Last year, average prices in the metro area ticked up just under 2 1/2 percent, according to preliminary figures from Rockville-based Metropolitan Regional Information Systems Inc.

Yun said "excessive negative coverage" about the nation as a whole, which saw prices fall, has given buyers a distorted picture.

The NAR economist said he thinks the worst is over from a seller's point of view in many markets, including the Baltimore area.

Job growth helps

Continued job growth is helping create pent-up need for homes, he said, while mortgage interest rates have fallen below 6 percent, a two-year low.

Yun acknowledged that some economists are predicting massive price drops, but he said some of those forecasts are based on the unusually large gap between income and home prices. He thinks it's more accurate to look at the cost of borrowing money to buy a home, which he argues is not out of whack with incomes, thanks to low interest rates.

In the Baltimore metro area, monthly payments on a 30-year fixed-rate mortgage would take 20 percent of a typical family's income if they buy the typical home, Yun said. That's on par with the nation's historical average, he said.

The calculation assumes a 20 percent down payment, an amount beyond the reach of many buyers in recent years as home prices escalated sharply. Buyers who put down less would spend more of their income on monthly payments.

Basu agrees that falling mortgage rates will help the local housing market. But he thinks rising foreclosures will weigh more heavily on the downside this year.

Though Maryland is in the middle of the pack for the share of borrowers behind on their payments, the number has been shooting upward in recent months, according to the Mortgage Bankers Association.

As lenders foreclose and try to resell the homes, that will add to the inventory. Already, the number of homes for sale in the Baltimore metro area is so high that it would take 10 months to find buyers for them all at December's pace of sales, according to Metropolitan Regional Information Systems data.

Both Basu and Amna Kirmani, a marketing professor at the University of Maryland's Robert H. Smith School of Business, are skeptical that a media blitz will motivate people to buy.

'A lot of suspicion'

"I think there's ... a lot of suspicion among people that it's only going to get worse, so why buy now rather than six months down the road," Kirmani said.

At yesterday's event in Timonium, news of the forthcoming ad campaign won applause. The promotion- in the form of taglines at the end of news, traffic and weather reports handled by Metro Networks - are expected to start next month and air for eight weeks.

"What we want to do is negate all the national media in terms of the doom and gloom," said Cathy Werner, president of the Greater Baltimore Board of Realtors and an agent for 22 years.

Denie Dulin, an agent with Hill & Co. in Baltimore, hopes buyers will stop waiting for that doom and gloom to show up in prices. Right now, they keep delaying a purchase because they think prices and interest rates will drop, she said.

"They're looking and looking and looking and want to see 50 or 60 homes before they make their decision," Dulin said. "That's a lot of looking."

jamie.smith.hopkins@baltsun.com

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