Baltimore Sun

Experts explain why Baltimore’s housing market isn’t overheatin­g

- By Giacomo Bologna

“I think most of the country would trade places with the Baltimore metro housing market right now … It’s the best buy in America right now.”

It’s a little like the story of “Goldilocks and the Three Bears.” Baltimore’s regional housing market was way too hot before the housing bubble burst in 2008. During the Great Recession, it was way too cold.

Now, after years of rising prices, it’s just right, according to researcher­s from two Florida universiti­es.

It might sound strange to the homebuyers who have waived inspection­s, paid far above the asking price and borrowed cash from friends and family, but real estate economist Ken H. Johnson said the Baltimore region is possibly the most stable housing market in the country right now.

“I think most of the country would trade places with the Baltimore metro housing market right now,” Johnson said. “… It’s the best buy in America right now.”

Johnson, a professor at Florida Atlantic University, and Eli Beracha at Florida Internatio­nal University have been tracking housing prices across the country for years, using historical sales data and demographi­c informatio­n to model what the average price of a home in any given metropolit­an area should be.

A lack of good data, plus competitio­n, irrational behavior and other considerat­ions, means homebuyers often spend far more to buy a home than what an economist would advise, Johnson said, meaning some housing markets are overvalued.

Every month, they publish a list of the 100 biggest metropolit­an areas, covering roughly 70% of the country’s population. According to their model, every major housing market is currently overvalued.

— Ken H. Johnson, real estate economist

Some markets, like Boise, Idaho, and Austin, Texas, appear to be dangerousl­y overheated, Johnson said, and a pricing bubble could burst. According to their model, the average sales price of a home in Boise is 70% more expensive than it should be, making it a risky purchase.

The housing market in Washington, D.C., though significan­tly more expensive than Baltimore’s, is just slightly overvalued.

Out of the 100 largest metropolit­an areas, Baltimore is the least overvalued, according to the model, with the average price just 3% above its expected value.

That makes the Baltimore area a safe — and attractive — bet for investors, Johnson said.

He noted there is variance within the region. Howard and Anne Arundel counties are expected to see a population increase over the next decade, which means prices are more likely to rise steadily, Johnson said. Meanwhile, if Baltimore continues to lose population, that could affect the stability of the city’s housing market.

Newly released data from the real estate firm Bright MLS show sales prices of homes in the Baltimore area continue to rise, but at a slower pace than earlier this year.

The median price of a home in June was $375,000, which is 5.6% higher than it was last year.

The Federal Reserve has been raising interest rates to combat inflation, which in turn has made home loans more expensive and priced out some prospectiv­e homebuyers.

Fewer people are buying homes in the Baltimore area, according to Bright MLS, and inventory — or the number of available homes for sale — has grown for the second month in a row after years of contractio­n. New listings, new pending sales, and home showings are all down, though the median home for sale is still spending just six days on the market before being sold.

Nick Ron, founder of House Buyers of America, spoke to The Baltimore Sun in June about the area’s housing market. His company buys, fixes and flips houses all across the country, with an emphasis on starter homes.

Ron said his company has been buying and selling more homes in the Baltimore area in recent years. Nowadays, instead of having 10 or 15 offers on homes, that number is around five, he said. That might seem relatively low, Ron said, but historical­ly, it’s good.

According to Ron, raising interest rates won’t solve the underlying issue in today’s housing market: Not enough homes for sale and not enough new homes being built.

“What’s blunting the housing market from crashing or from even cooling significan­tly is the low amount of inventory,” Ron said. “… There’s just nothing out there.”

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