To characterize Maryland’s housing market for the past year as “not good” would be easy but somewhat misleading. True, there are basic economic indicators (low inventory, high prices, fewer buyers) that explain a soft market for much of 2019 and, yet, there are reasons to be optimistic as the summer season transitions to fall. Mortgage rates are expected to remain low and overall economic activity throughout Maryland is expected to increase this summer, leading to more home sales. Unemployment also remains low in most Maryland counties, which leads toward pay increases for workers in those areas. Central Maryland counties (Anne Arundel, Howard, Prince George’s, and Montgomery among them) represent the lowest unemployment rates. This, combined with low interest rates, should translate to higher demand this fall for residential housing, particularly single-family homes.
Why the housing market became stunted through most of 2019 helps explain how it’s poised to recover now into 2020, despite earlier predictions of a looming nationwide recession.
“When the federal government is impacted by change, Maryland’s economy is inevitably impacted,” states leading economist Anirban Basu in his latest report contributed to the June/July 2019 issue of Maryland REALTOR (the publication for the state’s largest real estate association, Maryland REALTORS).
“Since the federal government shutdown, the economic momentum that characterized much of 2018 has proven elusive in the Free State,” he says. Basu explains that lackluster job growth from March 2018 to March 2019, especially in Central Maryland (adding just 15,600 jobs), was a major factor in setting back the housing market. “In percentage growth terms, that ranked Maryland an unremarkable 35th nationally, tied with Michigan…Maryland’s February home sales were, for lack of a better phrase, not good. Year-over-year sales were down 7 percent statewide that month.” In fact, 15 of 24 major Maryland jurisdictions experienced a year-over-year decline in sales.
Interestingly, this counters the traditional notion that our region is recession resistant. Afterall, Maryland maintains a sub-4 percent unemployment rate and mortgage rates have remained low throughout the 10 years of economic expansion. However, the federal shutdown also proves our state’s reliance on government employment. The shutdown affected consumer buying power in the short term and cracked consumer confidence, further burdening markets.
The next assumption would be that weak sales would lead to lower pricing, but that has not been the case. Low inventory has kept prices inflated. “Despite the recent softening in homes sales, the inventory of unsold homes remains well below what many real estate professionals would consider equilibrium in a larger share of communities,” Basu says. Across Maryland, median home prices rose 3.6 percent between March 2018 and March 2019 (from $275K to $285K).
The good news? Maryland still ranks fifth nationally for defense contract spending. That influx of federal dollars helps position Maryland’s economy for an overall recovery. “With the federal government shutdown increasingly in the rearview mirror and with the national economy strengthening, Maryland’s economy should be more vigorous by the summer,” Basu suggests. This, in turn, should be a boon for the housing market.
Additionally, mortgage rates are expected to remain low. Many experts think it’s likely that the Federal Reserve actually cuts rates versus raising them, which could lead to even lower mortgage rates. Good news for potential buyers.
Right now, the consensus among Maryland’s housing market experts is very cautious optimism heading into the final quarter of the year and beyond. The dark cloud of inflation is looming in the distance, though it remains uncertain what exactly could trigger a recession. Meanwhile, the housing market is expected to support an adequate sales pace, gradual price increases, and low average days on market.
Good news for sellers.
“It is conceivable that this summer will be associated with a restoration of year-over-year home sales growth,” Basu states.
The wild card heading into 2020? It’s a presidential election year. And elections, especially national, have the psychological effect of uncertainty among investors and consumers alike. Less investment and spending could be a straw that breaks economic expansion’s back. But, for now, a strong U.S. economy and Maryland’s slow but steady recovery are reasons to feel confident in the near-term.
State Legislation Impacting the Market
In this year’s Maryland General Assembly, legislation categorized under affordable housing and taxes became a case of “be careful what you ask for.” Many significant pieces of legislation that could have spurred affordable, first-time buyer, and new housing failed to pass. Meanwhile, several bills that streamline taxation collection did pass (optional property tax installment payment schedule and collections of unpaid taxes and tax sales). Legislators were keen on the windfall of money, about $400 million, that the state would receive as a result of the President Donald Trump’s “Tax Cuts and Jobs Act,” which amended the tax code for the first time since 1986.
Perhaps in an effort to provide a much-needed jolt to the housing industry, there was support among Maryland real estate professionals for several bills, which included HB41/SB88 “Student Debt Relief Act” (would have relieved student debt on the backend by adding an income tax deduction for 100 percent of the interest paid on a qualifying student loan) and several versions of legislation aimed at decoupling the federal and state taxation methods (for example: a Marylander that takes the standard federal tax deduction could itemize their state taxes versus taking the standard state deduction, to benefit from certain federal deductions, such as mortgage interest). These did not pass, despite the reasoning that debt relief in these forms could, in theory, increase consumer spending power and investment. All for naught.
Other bills that failed to pass included several of the tax credit variety, including those pegged to credit homeowners that install automatic fire sprinkler systems or perform lead remediation. Bills that would have credited housing developers who target a percentage of units to low-income families or construct public housing available to all-income levels failed, as did other affordable housing credits (one that did pass was a property tax credit for elderly individuals, removing the state’s 40-year residency cap to qualify). Despite this—and much like the economic and housing forecasting taking place—there were reasons to be optimistic. The General Assembly did pass several much-anticipated bills. According to Maryland REALTOR, “two of Maryland REALTORS’ top priorities, HB222—which requires written agreements for escrow money holders—and SB678—which permits Maryland notaries to provide remote notary services—passed on the last day.”
In fact, the last day of legislature was a busy one, as hundreds of bills were finished—yea or nay. Among those that passed to the benefit of the real estate industry, according to Maryland REALTOR, “legislation clarifying that real estate licensees must keep information learned at meetings to form a brokerage relationship confidential; legislation to permanently extend state (not federal) tax relief for forgiven mortgage debt; and legislation limiting ground rent escrows against sellers.”
On the Front Lines
Market sentiment among realtors echoes the cautious optimism that economists favor right now. We discussed the Chesapeake Bay real estate market, particularly Anne Arundel County and the Mid-Shore (Queen Anne’s, Talbot, Kent, Caroline, and Dorchester counties), with several agents and their answers help shape the local story.
“The last year or two has been primarily a sellers’ market but it’s more nuanced than that,” explains Shane Hall, of The Shane Hall Group of TTR Sotheby’s International Realty. “Our market is hyperlocal with schools, water, and proximity being the driving factors of value in our towns. Within the towns, neighborhood values are driven up or down by amenities offered. It’s a great time to sell if you’re in the areas everyone wants to be in.”
Travis Gray, an associate broker with Coldwell Banker Residential Brokerage in Annapolis, confirms that inventory, or lacking quality thereof, influenced the early half of 2019. “The general feeling earlier this year was that we had a lack of inventory, but it turns out we had about the same inventory as last spring, but we just didn’t seem to have much good inventory as the year started. But, by mid-spring it seemed like the flood gates opened and some really good inventory came on the market and went under contract quickly.”
The most sought-after inventory may (or may not) surprise you. Buyers are seeking turn-key, low-maintenance properties. “The house can’t really have a bunch of projects needed. People will pay for things that are done,” Hall says.
“Condition is king,” states David Orso, who leads the David Orso Team of Compass Real Estate. “Buyers want homes with little to no work required. The idea of selling a home with lots of deferred maintenance is almost obsolete. The ‘great neighborhood’ just isn’t enough anymore.”
This trend is partly attributable to two different generations—Baby Boomers and Millennials—that, actually, have this similar need but for varying reasons. Many Boomers are transitioning from larger houses to smaller—downsizing into walkable, mixed-use communities—and they do not want a project home (meaning fixer-upper). Similarly, an influx of first-time homebuyers (Millennials) have entered the market—particularly in denser, mixed-use neighborhoods and towns—with above-average buying power. They want clean and pristine. (For the record: those of you asking if Millennials are young grads and high schoolers, the answer is no—that is Generation Z. Millennials are adults, many of whom are mid-career, starting families, and buying homes. Generation X, by the way, is the generation that could “take on the world” and have bought many of the suburban fixer-uppers.)
“The Millennial buyers are influencing the market in different ways,” says realtor Biana Arentz of Coldwell Banker Residential Brokerage. “They do not want the big homes that their parents had, but they are buying homes…and investing in real estate. The younger generation is worried about student debt and are putting smaller down payments—but they are smart and are sticking to a budget.”
Sarah Morse, another agent with Coldwell, agrees. “These buyers want an urban lifestyle, where they can walk everywhere, eat out, attend concerts, and enjoy a sense of community. They don’t care about having a large home; it is more important for them to live more simply and be able to lock and leave.”
Real estate agents confirm that the most desirable communities continue to be the downtown vicinities of Annapolis, Easton, and St. Michaels, as well as outlying townships including Severna Park, Crofton, Chestertown, and Cambridge. But the very attributes that make them so desirable (walkability, community amenities, excellent schools, history/culture, close proximity to water) have spread to geographically adjacent neighborhoods, especially as mixed-use development continues to be built.
“Properties on the Wye River or the Chesapeake Bay area [are growing in popularity],” Arentz says. “We love Prospect Bay, a neighborhood in Grasonville—minutes to the Bay Bridge—that is a golf course community with water access and lots of amenities. Cove Creek and Southwinds, also in Queen Anne’s County, are desirable.”
“Poplar Point is another sought-after community for those who know the area well and can appreciate the accessibility,” suggests Mary Ann Elliot, also with Coldwell. “Although it is not technically in Annapolis, it is located on the Annapolis side of the South River and has exceptional private marina facilities for boating, kayaking, paddle boarding, crabbing, and fishing.”
“One criterion that is most sought after is water access and proximity to shops and restaurants,” sums Coldwell agent June Steinweg. “A neighborhood where someone can easily launch a kayak, paddle board, jet ski, or sail/power boat. Another criterion is walking/biking trails.”
How You Can Impact the Market
One of the most asked questions by both potential buyers and sellers has always been “Is now a good time to buy/sell?” And the answer is…well, it depends. To look at the big picture (see previous section in this article) and gauge whether it’s a buyers’ or sellers’ market based on available data, or if the season plays a factor, is a smart-ish approach, but, ultimately, the answer depends upon you. Are you ready? And a knowledgeable, experienced real estate agent can help you determine yes or no.
As of this writing, there are factors that benefit both buyers (low interest rates; “no doc” and “low doc” loans availability; quality inventory) and sellers (lower inventory; higher pricing), so it’s important to determine if you are truly ready to commit to a purchase/sale. “The time to buy is when you find the house you love and you can afford it,” says Arentz. “I always tell my clients not to worry about the season, just keep looking and we will find what they are looking for.”
Similarly, Orso advises that full commitment is needed when selling a property. “The best time to sell is when it is right for your needs and when you are committed to the process,” he says. “Selling a home is no easy task and it will be annoying to do if you are halfhearted.”
That said, realtor Travis Gray offered sound advice when taking the long view of the market and how buyer/seller decisions fit in. “If you’re an investor, or a cash buyer of opportunity, I would hold off on buying until the fall of 2020 when the market is almost certainly going to dry up with the election,” Gray assesses. “If you don’t have that kind of flexibility, now is a good time [to buy] in my opinion. With interest rates low and summer, when the market typically slows down, there could be some good opportunities. It’s impossible to know for sure where we are in the cycle, so buy something you will be happy in for at least 10 years in the event the next recession is close.
“There seems to be good energy in the market and the economy overall. In my opinion, if you are planning on selling in the next couple years, sell now. Two years from now could be a very different landscape.”
Steinweg concurs that selling now is favorable. “If you look at trends over the last several years, the cyclical nature of selling a home has kind of leveled out. So, I think if you price it correctly and present it well, it will sell! Inventory goes down during the ‘slower’ months, so it kind-of balances out.”
“If you listen to your realtor and price the property properly, declutter, stage, paint, et cetera, [you will sell your property],” says local realtor Day Weitzman. “It can take quite a while to prepare a property for the market and any homeowner who doesn’t take the time to prepare is making a mistake. Pricing and condition are very important.”
Preparation is the word heard time and again when discussing how sellers should approach the market, whether it’s before or during a potential transaction. “Get a home inspection before you list and address the main issues,” Gray says. “Prepare the property—paint, clean, landscape—as much as possible.”
“Curb appeal is crucial,” Morse confirms. “Power wash the exterior, get your windows professionally cleaned, and spruce up your garden. Take out furniture—the home shows best when two-thirds furnished, as buyers need to envision their belongings. Think about space, light, flow, and function. Clean and declutter. Trust the experts.”
And for buyers hoping to stick out among several bidders on a single property and “win” the purchase, similar principles apply. Build a reputable team behind you; local and respected realtor, lender, and title company. A good listing agent will investigate the buyer’s lender and title company. Other critical elements to prepare for are time of settlement (Does the seller want to settle quickly or want extra time in the property?), the deposit amount (Consider making a larger deposit than necessary to affirm the seriousness of your offer), and organize, organize, organize. “Submit clear, neat offers with a summary page attached,” Morse says. “It can matter. A seller considering two offers, where one is organized with each detail checked and another messy or incomplete, may select the professionally presented offer, even if for a lower amount.”
Of course, whether you’re selling or buying a home, all the timing, preparation, and organization ultimately comes down to one thing…pricing.
“The single most important factor in selling any home is to price it properly,” says local realtor Debra Fortier. “Introducing a home at an inflated price is almost always going to slow down your sale and result in settling for a price lower than you would have received if the house had been listed at the appropriate price going in.” This is a sentiment shared by every realtor surveyed for this article.
Weitzman hits on a serious point, “Homeowners have to take the emotion out of selling their home and realize the minute the house goes on the market they are in a business transaction and should pay attention to the expert they hired to help them sell.”
David Orso offers the bowtie. “Supply and demand are always at play and vary by category,” he says. “It is critically important to work with an agent who can assess the activity accurately for a home like yours or yours-to-be.”
