September/October 2005

By Fred Flick, Ph.D., Consultant/Housing Economist

Real estate markets across the entire state continue to be booming, but there may be some slowing in the last half of 2005. For the first half of the year, cumulative Maryland unit sales volume (both residential property types) increased 6.6% over the same period in 2004 and prices averaged $323,302 statewide. Prices leaped nearly 20% over the same period in 2004.

For the first six months in Montgomery County, settled sales rose a modest 3.2% over a year ago. However, prices averaged $488,256—a 17% jump over the comparable period in 2004. The July stats on the county show it continuing to lead the state in sales with nearly 1,643 settlements of single-family and condo/coop properties. However, these numbers were down about 3% from July 2004. This was a small dip and it was more strongly felt in the condo/coop market.


For single-family homes, the listing/sales side is continuing to soften a bit, although prices remain solid. Total active listings are up about 3% year-to-date from 2004, but the new July figures dipped 4% compared to July 2004. On single-families, year-to-date contracts are up marginally, but July saw a dip of about 6% compared to July 2004. And, year-to-date settlements were up 2% from the first 7 months of 2004, but July settled sales dipped about 1% compared to a year ago.

The average single-family home price rose to $554,651—jumping 16% from July 2004. The median of $460,000 leaped over 17%. Summing up, the July single-family market seems to be a bit softer than the prior three months, but prices have still been rising at high double-digit rates compared to a year ago. July total dollar volume on settled sales for singlefamily properties were almost $756 million.


July condominium and cooperative unit sales were weaker than the single-family market, but prices have continued to rise at double-digit rates. However, listings have been on the rise and this will tend to limit future price rises. Compared to a year ago, new listings in July were up 3.4%, but total active listings (419 units) ratcheted up almost 31% from the same month in 2004.

But, condo/coop contracts are showing some slippage. Yearto- date they have decreased about a percent, and the July numbers were down 1.4% compared to a year before. On the settlement side, while year-to-date closings were up 2.2%, the July figures were 12% below a year ago. These figures indicate some slowing in the market, but will it continue into the fall?

While the sales side seems to show some softening, the trend of average and median prices in the county has continued to be strongly upward. For condo/coops the average hit $298,958—a double-digit bump of 16%. And condo/coop median prices were up almost 21% to $269,900. Total dollar volume on settled sales for July condominiums and coops was $83.7 million. So far, there’s plenty of product out there, but the demand side may be cooling; we’ll have to see how August fares to see if we have a trend here.


On the whole, 2005 should still close as a great real estate year for Montgomery County. But the recent data portends a gradual slowing in the second half. You should expect some softening in prices in some sub-markets and neighborhoods, as deep pocket buyers get scarcer and pickier. There has been a lot of local and national media coverage of a “bubble” and the Washington, DC metro has been specifically mentioned. This has been sinking into buyer psyches. Also, rises in interest rates and high consumer debt loads will be an inhibiting factor. But it is not likely that there will be large drops in unit sales. Prices may have to pull back some, but it’s been a great year for the business. You should expect that most of your money will have been made in the first half.


There is a trickle of information suggesting that the first great real estate boom of the new millennium may be cooling nationwide. However, the data is not consistent by all measures and in all directions. The Federal Reserve continues to force up the short-term interest rate structure, recently raising the Fed Funds rate to 3.5%. This pressure seems to be starting to move the longer term rates as well.

Also, housing price increases are being watched by federal regulators so the Fed will continue to push on short-rates and, if necessary, longer-term rates as well. The housing industry should expect that regulatory agencies will be looking for ways to limit the use of high risk, no down loans that have made the coastal markets boom. The loans are great to get buyers in; but they may face real problems in affording their mortgages in the future if longer term rates rise significantly. By the end of the year, Fed policy will likely make standard ARM rates move into the 4.5% range and 30- year fixed-rate mortgage loans should move closer to the 6% level.


The CPI for July indicated that overall consumer inflation is now running at about a 2.5% annual rate, slightly higher than the rates for the first four years of the decade. When we exclude food and energy from the total, we find that the “core” inflation rate is still only about 2%. The main contributor to the recent rise in inflation is the price of energy. Oil and gas price inflation will be a continuing problem for everybody with the spot price of gas now setting new records above $60/bbl. You should plan your multiplestop trips carefully.

Unfortunately, there is still more room for movement in the price of gasoline depending on the impacts of hurricane season, lack of capacity in gasoline refineries and events in the Middle East. Treasure fondly that “cheap” gas you were able to buy last summer? we are not likely ever to see those prices again. Nevertheless, most analysts still believe that it will not cause economic stresses as severe as those experienced in the late 1970s and early 1980s. But, be sure that higher gas prices will soon begin to pinch consumer spending and there will be some slowing effects on the economy. As in the 1980s, property energy use efficiency could again become an important topic in many future real estate transactions.