Price Declines & Months of Supply (Backlog)
Seems that the question still is, "Are home prices going to decline in the Baltimore Metro area?" My last post, January 2008 Data , shows significant year-over-year price declines for almost all the major metro areas of Baltimore.Baltimore County -5.9% for both median and average sale price
Carroll County - 7.8% for both median and average sale price
Howard County -2.6% for median and -0.2% for average sale price
Anne Arundel County -4.4% for median and +0.4% for average sale price
Harford County +2.2% for median and -1.6% for average sale price
Unit mix is to blame for Howard, Anne Arundel and Harford Counties having differences between median and average. Mix skewed either to higher or lower end housing will cause this difference.
Anne Arundel and Howard County appear to be selling more low end housing than before and why it has a slight price increase is unknown. I'd have to look at the actual sales data by house to know why. It could be due to a handful of extremely high end homes selling, more $1M+ and fewer $500K homes selling. I would think, but not necessarily correct, would be more low end sales with a very few high end sales ($400 - $700K) and a handful of mansions sold.
Harford County is selling more high end homes than last year (increased median), but the price of those homes have declined (decreased average). This might be explained due to the fact that Harford County still has a lot of new construction coming to the market.
Housing is not going to cheat the laws of supply and demand. When their are more sellers than buyers, prices come down. When their are more buyers than sellers, prices go up. Since real estate is not very liquid (can't convert to cash or cash equivalent quickly), price impacts from supply is delayed. Additionally prices are sticky (reference these posts from Calculated Risk on "Sticky House Prices" ) and take time to come down. Below are two graphs which show how Baltimore and Maryland are not immune to the housing correction.
The left axis shows home sales and inventory (red and blue bars) while the right axis shows months of supply (yellow line). Months of supply is Active Inventory/Sales. This is also known as months of backlog. Pay particular attention to what happened in August 2007, notice the drastic jump in months of supply? This is due to the credit crisis which resulted from the "subprime meltdown" and the credit markets cutting off loans for anybody with bad credit and non-conforming loans (note many of Greater Baltimore's homes are non-conforming, over $417,000). The fed has cut rates like a heroin addict going through withdrawal in hopes to keep mortgage rates low, but this hasn't helped. Baltimore and Maryland are not immune to the housing correction, we are all subprime now. (click on graphs to make larger)
Greater Baltimore's Month of Supply (Backlog) is 14.1 months while Maryland as a whole is 16.8 months. Both of these figures might be an all time record for Maryland. The national average is currently 10.3 months according to the NAR as reported by the Baltimore Sun . During the bubble period shown above, backlog was below 2 month on multiple occasions for both Greater Baltimore and Maryland as a whole.
According to Calculated Risk (hat tip to BubbleMeter for digging up this link), "Usually 6 to 8 months of inventory starts causing pricing problems, and over 8 months a significant problem."
I think this spring will be renamed the "spring listing season" instead of the spring selling season. Anyone want to take bets on Greater Baltimore and/or Maryland going over 20 months of backlog?
As it is now, some serious pricing pressure is in our housing market....it can only get worse.
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