November/December 2005

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

Maryland real estate continues to be strong, and it looks like a new record. But there are signs of slowing. Through August, cumulative unit sales volume (all residential property types) was up 4.5% (over the same period in 2004) and prices averaged $333,400 statewide — almost 20% over the same period in 2004.

For the first nine months, Montgomery County settled sales were up less than 1% over a year ago; through June they had been up 3.2%. In August, prices averaged $507,476 — a 4% bump over the average price of the first six months, and 19% above August 2004. The August stats on the county showed it continuing to lead Maryland in sales with 1,767 settlements of single-family and condo/coop properties. Nevertheless, these numbers were down about 7% from August 2004. But they suggest some slackening in buyer demand which is partly seasonal, and also reflects the high price appreciation and rising costs of finance.


For single-family homes in September, 1,996 new listings were up 26% and 2,421 totals active listings (inventory) were up nearly 30% from the levels of September 2004. But contracts were down a bit. Year-to-date contracts (10,650) were down a little over 1%, and the pending September contracts dipped just over 8% from the previous year. On the other hand, settlements were doing better than in September 2004. Year-todate settlements (10,199) were up 0.5%, and September settled sales (1,009) rose 3% compared to a year before.

The price news was the best. Single-family home prices averaged $561,749 — a jump of 17.5% over a year ago. And, the median price of $465,000 leaped 18.6% above its September 2004 value. Summing up, the September single-family market seems to be softer than two months ago in listings and contracts. Nevertheless, prices have still been rising at high double-digit rates compared to a year ago. September total dollar volume on settled sales for single-family properties was over $556.8 million.


September condominium and cooperative settlements (269) were down 15% from a year ago, but prices continued to rise at double-digit rates compared to 2004. Compared to a year ago, September new listings (526) leaped 30% with total actives (625) up a whopping 69% from the same month in 2004. There is slightly over a twomonth supply at the September sales rate.

Moreover, as in July, condo/coop contracts are continuing to show some slippage compared to this time last year. Year-to-date September they have decreased about 3%, and September contracts are down 14%. The news is similar for the settlement side. Year-to-date closings have slipped from being up 2.2% in July to being down 0.3% for September. Settlements in September dropped 15% compared to the same month in 2004. These figures definitely indicate slowing in the market into the early fall and with a two months supply of inventory, it is likely to put more pressure on prices.

Nevertheless, although contracts and settlements are softening, average and median prices in the county have still been bumping up big time. The average condo/coop hit $303,901 — a double-digit bump of 17% over a year ago. And median prices were up 21% to $271,500. Total dollar volume on settled sales for September condominiums and coops was over $81.7 million. Again, there’s product, but the demand will be cooling with the season and higher interest rates. Unless the inventory drops a bit, you will see developers cutting prices to move product.


The Fed probably won’t stop raising the Fed Funds target until they get it to 4.75% in spring 2006. Board members and staffers are worrying that we are seeing some expectations of inflation creeping into the consumer goods market. The house price boom also has them concerned, but more about the financing arrangements than about prices per se. But, the financial environment has contributed to the large amount of housing debt buyers have been taking on. There will be continuing pressure on making certain kinds of loans, but interest rates should still remain very affordable.


The CPI for August indicated that overall consumer inflation is now running at about a 3.6% annual rate, a significant jump, due primarily to energy costs. Energy is up 20%, food rose 2.2%, and medical care was up 3.9% compared to the previous August.

When we exclude food and energy from the total, we find that the “core” inflation rate is still only about 2.1%.

Consumers have adjusted gas consumption somewhat, and some think the prices will decline some more. On the home heating side, we are facing an expensive gas heating year (prices up 40% from a year ago). However, consumers will be adjusting car purchases and general energy consumption over the next few years. Properties that are more energy efficient will become more valuable and that near public transportation and closer-in should continue to be prized.


We’re still on track for 2005 to be a new record, but the market is showing signs of softening this fall and into 2006. The Fed continues to lean on interest rates, even after Katrina and Rita and will continue to push rates up. There definitely has been a change in the market psyche — everywhere buyers are getting tougher and sellers are wondering why their houses aren’t selling as fast. The good news is that the local economy is still very strong and is not likely to slip very much. Montgomery County is in great shape and risk of a localized recession is nil. However, with an affordability squeeze and a continuing financial squeeze, sellers will have to be flexible.