WASHINGTON – Despite a 20 percent increase in bankruptcy filings last year in Maryland, the state’s economy has not suffered and will likely continue to prosper, experts say.
More than 35,000 bankruptcies were filed in the state in 2005, according to records from the U.S. Bankruptcy Court for the District of Maryland. Nationwide, more than 2 million bankruptcy cases were filed last year, the highest number on record.
In Maryland, more than 11,000 cases were filed between Oct. 1 and Oct. 16 as consumers rushed to avoid a new, more stringent bankruptcy law, which went into effect Oct. 17.
John Hopkins, who produces economic forecasts for the state, said the economic impact of the surge in bankruptcies late last year will be minimal.
“That small portion — or relatively small portion — of the population didn’t constitute a lot of economic activity beforehand,” said Hopkins, the associate director of applied economics and human services at Towson University. “The economy is not going to miss them.”
Hopkins ranked Maryland in the top 20 percent of all states in terms of economic health due to high levels of personal and disposable income among residents. If either the real estate market or the economy experienced an unexpected slowdown, Maryland would fare much better than other states, Hopkins said.
A major factor fueling the state’s economy is the Base Realignment and Closure Act, or BRAC, which was approved by Congress and President Bush late last year. The act will result in the relocation of about 15,000 defense and consulting jobs to the state, primarily in Harford, Anne Arundel and Baltimore counties.
Peter Morici, an economist at the University of Maryland, College Park, said the recent cooling in the real estate market will have little effect on those who have recently declared bankruptcy.
“In the end, (creditors) aren’t going to be able to get more than a certain amount of money out of people,” Morici said. “The people who get hurt the most are the banks. Those are the ones that have been writing these squirrelly mortgages.”
Morici cited no-interest and negative-interest mortgages as examples of lending practices that will hurt banks if the economy takes a downturn.
Al Ingraham, president of the Maryland Association of Realtors, said such loans are one of the largest concerns looming before the real estate industry, though he hadn’t seen any problems so far.
“If there’s a hiccup in the system, these people are stretched to the limit,” he said. “They’ll have to throw up their hands and lose the house.”
Although high numbers of bankruptcies reflect growing debt, Hopkins said there is no reason to believe there will be a reduction in consumer spending.
In light of unusually warm winter weather, the average Maryland consumer bracing for a high heating bill might end up with more spending money at the end of each month, Hopkins said.
Consumers’ ability to withstand skyrocketing energy costs following Hurricane Katrina, he added, indicates they will probably be able to weather a significant economic drop-off. But Hopkins and Morici agreed that such a decline is not likely.
In a sign the market is slowing, the Maryland Association of Realtors said the average first-time home buyer found housing less affordable in November than at any time in the past five years.
Hopkins, however, said that Smart Growth policies, which restrict development in rural areas, and a shortage of land in Maryland will ensure continued growth.
Morici predicted the real estate market would flatten out or decline in 2006 and the economy would slow, but not “go south.”
“Anyone who believed the market was going to go on forever,” he said, “hasn’t been living on this planet.”