The recovery in the Washington area’s housing market continues to spread, but progress lags in the Maryland suburbs, where foreclosures are still dragging down prices.
With sales surging, the average selling price for homes across the area was down only 7 percent this August when compared to August 2008, according to the “Shape of the Recovery” report released this month by George Mason University’s Center for Regional Analysis. That’s a big improvement since March, when the market suffered its fifth straight month of annual price declines in excess of 20 percent.
But the Maryland suburbs improved only slightly over the same period, showing a 15 percent drop in average prices in August, compared to an 18 percent drop in March.
The situation is worse in Prince George’s County, where average prices fell by 20.9 percent in September, according to the latest data released by Metropolitan Regional Information Systems, which tracks local housing sales. Prices were lagging even in wealthier Montgomery County, which traditionally has been at the leading edge of regional market trends. Average prices were down 9.88 percent in September in Montgomery — which is still a big improvement over March, when prices tumbled 19.35 percent.
The problem in the Maryland suburbs is that they continue to suffer the effects of rising foreclosures. The number of foreclosures in Prince George’s jumped to 1,919 in September, showing a 29.9 percent increase in the filing rate in the third quarter over the prior three months and a 59.1 percent increase over the same period in 2008, according to RealtyTrac, which follows foreclosure trends. In Montgomery County, the number of foreclosures hit 1,600 in September, and the rate was nearly a third higher in the third quarter over the second quarter and 99.1 percent higher than in 2008.
“The foreclosures are the key problem affecting prices,” said housing economist Fred Flick, who reports on local trends for the Greater Capital Area Association of Realtors. “They affect everybody, and that puts a damper on prices and stops prices from flattening out.”
While the region is showing some recovery from the subprime mortgage crisis that touched off the national real estate crash, close observers warn that the effect of a new wave of defaults is only beginning to be felt.
“What we’re seeing now are foreclosures from an entirely different area. We are seeing them in the prime loans, which is pointing to unemployment and the overall economy,” said Barbara Goldberg-Goldman, founder and co-chairwoman of the Affordable Housing Conference of Montgomery.
The increase in “foreclosure events” experts are now observing signals trouble down the line, she said. “These include late payment and notices [to homeowners] from banks that ultimately will lead to foreclosures and bank sales in the future.
The new wave of foreclosures will not crest until the middle of next year, and prices will not begin to recover until 2011, said Goldberg-Goldman, who is also a principal for Quorum, a consulting and development firm specializing in mixed-use and mixed-income development. These “stealth” defaults are not yet showing up as foreclosures in bank reports but they already are pushing down prices as homeowners sell at reduced rates to get out from under their debt.
Another factor, at least in Maryland, is a homeowner relief law that Gov. Martin O’Malley signed in April, lengthening the timeline before a bank actually seizes property for a mortgage default. The measure lengthens the process from 15 days to about 150 days by providing homeowners with more time and notice before a foreclosure sale.
Lenders must now wait 90 days after default before filing the foreclosure action. The law also requires personal service to notify a homeowner of impending foreclosure action and requires that a sale not occur for 45 days after service. Homeowners can stop foreclosure by paying what is owed up until one business day before the sale.
This might effectively delay the next wave of foreclosures, said Goldberg-Goldman, and could block some forced sales entirely. “It might help cut the rate of foreclosures to give people time to get back on their feet and work out solutions with their banks.”
Whatever happens with the new foreclosure wave, the housing market is showing signs of building steam through increased sales.
Overall, the area is showing a strong rebound in terms of home sales and reduced inventory. The market has definitely turned, with the glut in the number of existing homes for sale down 21.7 in August from the same month in 2008, according to the George Mason study. The number of homes for sale has fallen to levels not seen since the peak of the market in 2005.
The trend holds even in Prince George’s, where active listing fell in September to 6,073 homes, down from 7,804 in the same month last year, according to the Maryland Association of Realtors.
Prices are increasing in Northern Virginia, where strong sales pushed up average prices for homes sold in September to $427,881, a 4.94 percent increase over the same month in 2008 (not including Prince William and Loudoun counties), according to MRIS. Prices were up 8.7 percent in Prince William and 7 percent in Loudoun. In Washington, prices fell by more than 12.2 percent.
“If you look at the trends in listings and prices, the decrease is flattening out,” Flick said. “So that’s good news. The rate of decline is declining.”
