If the economy hasn?t officially entered a recession, the signs are out there in Baltimore?s housing, retail and job markets. Home sales and prices are down, consumer spending is sinking and unemployment is increasing.
Mortgage meltdown slows housing market
Economists have pointed to the beginning of last summer?s subprime mortgage crisis as the start of the economic slowdown.
“Call it Black August,” said Marc Witman, a partner at Baltimore?s Yerman, Witman, Gaines & Garceau Realty.
Since last fall, the number of housing units sold in the Baltimore metropolitan area has fallen each month by at least 30 percent from the year-before period, according to Metropolitan Regional Information Systems. The number of units sold in the Baltimore region in February dropped by more than 33 percent from the same period in 2007.
“The buyers are there, and interest rates are great,” Witman said. “The buyers, though, have to perceive value before they jump off the fence. We still have a bunch of buyers in search of the perfect house.”
More than the perfect house, buyers want a property that won?t lose value several years down the road, Witman said.
“In this market, people just don?t want to overpay,” Witman said.
In February, housing prices fell 4.36 percent across the Baltimore region from the same period a year ago, according to MRIS data. The average sale price of a home sold in February was $301,816, down from $315,578 in February 2007.
To put things in perspective, the average sale price in the region was $253,916 in February 2005, 18.86 percent lower than today?s average price and a sign of how low prices might have to go to motivate buyers.
“Price is king,” Witman said. “Sellers must be willing to give up what value they had in their mind a year ortwo ago.
“My message is, ?If your house isn?t selling, your price is wrong.? ”
Cautious consumers curb spending
Bombarded with news about the subprime mortgage crisis and the housing slowdown, consumers have responded with caution, curbing their retail spending.
“It?s been pretty dismal since November,” said Tom Saquella, president of the Maryland Retailers Association. “I don?t think it?s going to get better anytime soon.”
Saquella uses monthly state sales tax receipts to gauge consumer spending, and recent results haven?t been pretty.
In December, sales tax receipts dropped by almost 8 percent from the year before. In January, the new 6 percent state sales tax helped results, but after accounting for the increase, Saquella said sales were actually down about 3.5 percent from the year before.
“I?m hearing from retailers that February was a little better, but it?s all relative,” Saquella said. “Everyone is pulling back. They?re concerned about the economy.”
Consumer spending accounts for about two-thirds of total economic activity, a major reason the government is putting more than $150 billion worth of stimulus rebates in consumers? hands. Retailers have done their part by offering “heavy, heavy discounts,” Saquella said.
“You?ll still see people out at shopping centers, but they?re buying less and they?re buying less-expensive items,” Saquella said.
“The only good thing about Maryland is we haven?t seen the unemployment yet,” Saquella added. “People still have jobs, but they?re just being cautious with their spending.”
Regional unemployment increases
Rising unemployment might be next, though, as the Baltimore area?s jobless rate jumped to 4 percent in January from 3.6 percent in December, according to data released Wednesday by the Bureau of Labor Statistics.
The local data come a couple of weeks after the Labor Department reported the U.S. economy lost 63,000 payroll jobs in February. The national unemployment rate was 4.8 percent.
“Welcome to the recession,” said Peter Morici, a professor at the University of Maryland?s Robert H. Smith School of Business. “Any increase is not welcome. It means hardships for families.”
In the Baltimore-Washington corridor, economists have said the region is somewhat recession-resistant because the local job market is stabilized by government, IT and health care jobs.
According to Wanted Technologies, a supplier of sales and business information, the most advertised job openings in the Baltimore area are in sales, IT, health care, engineering and accounting/auditing positions.
Morici, though, maintains there still aren?t enough high-paying jobs available to satisfy the work force demand.
“The economy is entering a recession,” Morici said. “It?s going to get worse before it gets better.”
