March/April 2006

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

Maryland real estate has set new sales and price records last year. Through December, MLS figures show that Maryland cumulative unit volume of over 104,700 sales (all residential types) were up 5% from 2004. Also, prices averaged about $336,700 statewide — 18.5% over 2004.

Montgomery County stats through December show it leading Maryland in sales with a cumulative total of about 16,828 settlements (about 16% of state unit sales). But, single-family and condo/coop settlements were down about 3.9% from 2004. Fortunately, average prices were up double-digits over a year ago. Through December, prices for all units averaged $507,345 and were 18% above 2004. The slight decline in settlements in the second half of 2005 likely reflects the high price appreciation in the county and the increasing interest rates.


Compared to a year before, December unit sales were down, but the price performance was very good. Year-to-date contracts (13,107) were down over 5%, and December contracts dropped 21% from December 2004. The story was similar for settlements. Year-to-date settlements (13,179) were down almost 4%, and December settled sales (865) dropped 17% compared to a year before. However, there was improvement at year end. Cumulative settled sales were up nearly 1,000 units from November and December production was up by 23 units.

On the supply side, year-to-date listings of single-family homes rose substantially from 2004, tapering-off at the end of the year. For single-family homes in December, the county’s 1,907 total active listings were 92% above the levels of December 2004. But for the month of December, there were 640 new listings — up only 0.8% from December 2004. At the December contracts pace, there was a 3.2 month supply of active listings.

The best news was in the performance of prices. December single-family home prices averaged $563,033 – up 17.8% over a year ago and $2,700 over the November average price. The December median price came in at $465,000 (same as in November) but there was a jump of 18.6% above its December 2004 value. In summation, the December single-family market continued to soften on the sales side, but prices still maintained their inexorable double-digit pace compared to 2004. We’ll have to see how 2006 works out, but some continued softness in the pace of single-family sales and slower rates of annualized price appreciation are likely.


Condos and coops were also seeing declines in contracts and settlements. December condominium and cooperative settlements were down from December 2004, but prices continued to rise at high double-digit rates. Similar to the single-family market, there was plenty of inventory on the market, especially from new construction and recent conversions. Compared to a year ago, December new listings (226) rose only about 3%, but total actives (661) were up a whopping 157% from a year ago. At the December contracts pace, there was a 3.9 months supply of actives on the market. While this is not a glut compared to past years, the supply has been rising at an increasing rate.

Along with the general slowing of the market, the relative pace of condo/coop contracts has been leveling off compared to the same period in 2004. Through the end of 2005 they declined by 8%, and December monthly contracts dropped a significant 32% compared to a year before. As one would expect, the news is similar for settlements. Year-to-date settlements showed continued slippage since the end of the summer. Through December, they were down 5% with monthly settlements dropping a third compared to 2004. Expect continued slowness in the condo/coop market over the next month or so, but things will improve by early spring. Most forecasters still suspect a slower housing market in 2006 and an almost four-month supply of inventory is likely to keep the lid on price jumps for the next few months.

In December, the average condo/coop price hit $306,217 – a 19% leap over a year ago. And, median prices ratcheted up almost 23% to $275,000. Prices in December did not move up significantly from the November levels, so there is some flattening out of the month-to-month price curve. But, there is still room for plenty of optimism for the housing market. Although contracts and settlements have softened, the solid economy of the county and metro area should support solid annual price appreciation.


Housing is still continuing to be a strong sector of the economy, albeit moving at a slightly slower pace. As financial markets fully expected, Alan Greenspan’s last meeting of the Federal Open Market Committee moved the Fed Funds target rate to 4.5%. Language in the press release left open the possibility of further increases and analysts are now betting the new Fed Chairman, Ben Bernanke, will push the rate to 4.75%. A continued strong pace for new construction, low unemployment, and higher energy costs could cause the Fed to raise the rate to 5% by mid-spring. While there was some fear of a regulation crack-down on option mortgage instruments, they are still widely available, although interest rates on these and adjustables have risen. The expected availability of relatively low cost and flexible financing should help keep the market going this spring.


The CPI for December showed national consumer inflation running at about a 3.4% annual rate, due primarily to rising energy costs. However, when food and energy were subtracted out, the increase was only 2.2%, and this “core inflation” figure has been relatively constant over the past year or so. Energy costs increased 17%, and food was 2.3% higher than a year ago. Nevertheless, December personal income and consumption expenditures have also risen, indicating that consumers have plenty of money and are still willing to spend (and, even more than they have). But, inflation in the greater metro area has been somewhat higher than the national rate. The November consumer price index for the Washington- Baltimore area rose about 3.7% over November 2004. Inflation is not out of control, but it is creeping along and has the potential to be higher in the future.


The year 2006 will be a transition year as the pace of national and Maryland real estate sales slows. However, there is little risk of an economic recession in Montgomery County or a significant decline in housing sales or prices. You should still expect some increases in interest rates into the spring. These will slow the market somewhat, but not cause any abrupt adjustments. And, the Fed may stop raising the rate after a couple more hikes — just in time for the full spring market. Just hang in there!