Income in Maryland is not keeping up with real estate prices, putting homeownership out of the reach of some middle-class homebuyers.
The median household income in the state is just below $53,000, according to U.S. Census data. Households with that income level can generally secure mortgages of about $160,000, according to lending practices that state a borrower usually can afford a mortgage three times his or her annual income.
But with the median price of a home sold in October in the Baltimore metro area ? Anne Arundel and Baltimore counties, Baltimore City, and Carroll, Harford and Howard counties ? at $265,000, the $100,000-plus gap may be too much for middle-income residents to overcome.
“Even at [three times annual income], home prices have been out of sync with incomes,” said Steve Walters, a professor of economics at Loyola College in Maryland. “There is $100,000 worth of air in the median home price, but I don?t think you can say that all that amount is artificial inflation in the current price. It may just be that the median household can?t afford a home in our area, or certainly some specific neighborhoods in the metro area.”
But, he said, the true price of a home isn?t necessarily seen in its selling price. The quiet secret in real estate, he said, is the incentive market ? offering thousands of dollars in add-ons for new construction or bonuses for existing houses such as closing-cost assistance or upgrades in appliances and floor covering.
“Everyone has a stake in saying the market is brisk,” Walters said. “They don?t want the few buyers who are out there to step to the sidelines and wait for prices to fall. But prices are falling, and the bubble is bursting.”
While the Metropolitan Regional Information System Inc. real estate trend indicator shows the median price for a home sold in the region in October was 1.92 percent above October 2005?s $260,000, the figure does not include the cost of the incentives.
“But there are limits to this,” said Deborah Ford, a professor of finance and chair of the Department of Economics, Finance and Management Science at the University of Baltimore Merrick School of Business.
Builders “may pay $10,000 toward closing costs, but they are not going to pay $50,000. And the same thing is happening with existing homes, but at some point [sellers] won’t do any more [incentives] and will start lowering the price,” she said.
