WASHINGTON – Real estate prices and sales continue to defy gravity throughout Maryland, despite expectations earlier this year that rising interest rates on mortgages would bring down both.
Declining rates, a rebounding economy, tight home inventories and a growing number of baby boomers’ children in the market for their own homes, have created a perfect storm that is fueling demand and sustaining high prices and sales here, say analysts.
“We thought rates would be a lot higher,” at this point in the year, said National Association of Realtors’ spokesman Walter Molony, explaining one reason why the real estate numbers have not slipped as expected.
Molony said that contrary to popular belief, mortgage rates are largely immune to federal, short-term interest rate increases, which climbed this year to a three-year high of 2 percent. Rather, they tend to be tied to debt instruments such as 10-year Treasury bonds that have gradually declined from a year-to-date high of 4.73 percent in June.
Citing figures from the Federal Home Mortgage Corp., or Freddie Mac, the Realtors’ association said the national average commitment rate on a 30-year conventional fixed-rate mortgage was 5.89 percent in the third quarter. That was down from 6.13 percent in the second quarter of this year and 6.01 percent in the third quarter last year.
But interest rates alone are not responsible for what the association says will likely be a record-setting year when it comes to homes sales in Maryland. The economy and, in some areas, changing demographics have sharpened demand, both nationally and in Maryland.
“Our state is doing better than the country as a whole,” said Debbie Hager, a spokeswoman for the Maryland Realtors Association.
The National Association of Realtors said overall Maryland home sales in the third quarter of 2004 were 7.2 percent higher than the third quarter of 2003. Nationally, the increase stood at 4.1 percent.
Hager pointed to low unemployment and high income levels, along with low mortgage rates as fueling the state’s strong overall sales of residential real estate.
She said that there are likely pockets within the state that have not seen the marked growth of the Washington suburbs and other urban areas. Nevertheless, rural communities appeared to be faring well, as urban residents moved further out in a bid to find affordable housing.
“There are people who are actually commuting (to Washington, D.C.) from Allegany County,” Hager said.
“We have people coming in droves,” said Linda Pluta, chief executive officer of Cumberland-based Historic Highlands Association of Realtors, which serves brokers in Allegany County, as well as nearby parts of West Virginia and Pennsylvania.
“They’re working from home and commuting” when they have to, said Pluta, referring to the influx of Washingtonians.
Pluta said some local agents had told her that they had done as much business in one month this year as they had over the course of 2003.
Urban areas such as Baltimore City have also seen improvements, albeit less pronounced, said Henry A. Strohminger III, president of the Greater Baltimore Board of Realtors.
“We’ve seen incredible appreciation in the Baltimore area,” he said.
Data from the Metropolitan Regional Information Systems indicates that Baltimore City saw a 12.3 percent increase in the average price of homes sold from last October to this.
Strohminger said the area’s low inventory of homes was doing more to drive up prices than falling mortgage rates — and was a primary concern to the area’s real estate agents.
That sentiment was shared by Pluta who said a dearth of builders in Western Maryland means homes cannot be built fast enough to refill depleted inventory and meet demand.
“If you know some developers, please send them this way,” said Pluta.
-30- CNS 11-24-04