Baltimore-area realtors and lenders see mortgage rates dropping in 2024, which would make homes less expensive for potential buyers and sellers more willing to let go of homes with low-rate fixed mortgages.
With a high-water mark of 8% this past October, the market has seen small declines in the interest rate. As of December, the rate fluctuated around 6.9%.
Until now, the rates have dampened demand for housing, particularly among first-time buyers and those with limited financial resources.
“It got to the point, when rates rose to 8% or even higher that it was painful for people to buy. It became unaffordable for many,” says Michael Becker of Sierra Pacific Mortgage. “Now they are coming down, so we’re seeing activity pick up.”
Dropping interest rates are “going to entice a lot of buyers, who have been on the sidelines, to get back into the market,” says Brad Cox, a realtor with Long & Foster and treasurer of the Greater Baltimore Board of Realtors. Becker sees rates coming down further if inflation lowers and the “economy doesn’t go gangbusters. There’s people who got 30-year fixed rates in the high twos a few years ago. If the rates come down to 5% that would be a huge win and that is historically a very low rate.”
Tiffany Harris, a Baltimore realtor, agrees. “We’ve already seen [that] interest rates have lowered. That’s music to our ears because we saw it as high as 8%. I don’t think we’ll ever see interests rates in the twos again, probably not in my lifetime. I don’t think we’ll be in a space where the economy can withstand that again. I didn’t think that real estate would thrive the way that it did during COVID, so anything is possible.”
The COVID market was like no other, Cox says. “When COVID was going in full force, people were realizing they were not able to go away on vacation, so they decided to live on a property that allowed them to enjoy their time together, so they were looking for properties that had those amenities, a nice backyard, deck, a swimming pool. The house was fairly average, but the outdoor living is what everyone was looking for at the time.”
Despite today’s challenges of limited inventory and high mortgage rates, regional home prices have been resilient.
The median sale price of a home in Baltimore County was $330,000 in November 2023, up 10% since the previous year. Homes in the county have sold for 4.5% more than they did a year ago.
Meanwhile, in November 2023, Baltimore City home prices were up 2.9% compared to the previous year, selling for a median price of $215,000. On average, homes in Baltimore sell after 36 days on the market compared to 38 days in 2022. There were 610 homes sold in November 2023, down from 657 in 2022.
The Baltimore metro area is still facing inventory challenges amid high interest rates.
“There’s still a lot of homes that need to come on the market, and hopefully the lower interest rates will entice those sellers who are locked at a lower rate,” Cox says. “If it gets low enough, the rates will induce people to move.”
The biggest impact that interest rates have is on the discretionary mover, Cox says. “The person who doesn’t have to move has typically been sitting still. Meanwhile, the buyer that needs to move, they’re still moving.
“There was a tremendous range of homes with existing mortgages that were under 3%, and for them to move, the phrase ‘golden handcuffs’ was used, because that rate was great and they didn’t want to experience moving and wind up with a rate in the 7.5-8% range. Their buying power would have been significantly reduced,” Cox says. “Potential sellers wouldn’t move from where they were unless they had no choice.”
If rates come down, that will help the inventory issue, Becker says. “People are unwilling to let go of their home if they have a super low rate and they have to go to a much higher rate.”
With reduced demand due to higher interest rates, home sellers sometimes are forced to lower their prices in order to attract buyers.
“National news is not necessarily an accurate picture of what’s going on in your area,” Cox says. “Certain neighborhoods have homes sitting longer on the market and price reductions happening. Then there are other neighborhoods where sellers are getting multiple offers and there’s a lot of competition.”
When rates were at 3-4%, people bought homes and paid well over list price. “They went crazy,” Cox says. “They went well over list price, waived inspections and waived appraisals. We’re still seeing competition now because the interest rates have moderated a little bit, but not the level of competition when rates were down in the threes and fours. Today’s buyer isn’t having to waive all those contingencies and offer as much over list price as they were before.”
Sellers today are disappointed. “They’ve lived through the past few years, and they’ve seen what their neighbors have gotten, all the competition for their home,” Cox says. “Now we’re not seeing those kinds of offers that we saw back in the heyday when the market was frothy as it was before.”
While builders’ confidence in the housing market remains strong, many are increasingly concerned about rising interests rates. “Home builders have been underbuilding for quite a number of years,” Cox says. “We’re short from where the demand really is, so that wasn’t helping either.”
In the COVID market, there were lower interest rates and many sellers refinanced, says Harris of Harris Hawkins & Co. “They may have a 2.5-3% interest rate and realize if they sell their home and go back into the market as a buyer, it could still be an affordability issue or it really doesn’t make sense for them.”
There is also an impact on refinancing. High interest rates can discourage homeowners from refinancing their existing mortgages, which can reduce overall marketing activity.
“I do believe we will see a turnaround,” Harris says. “I don’t think that we will go into a full buyer’s market because even though we have buyers that are ready, there’s still the inventory issue statewide.”
The Baltimore area will always be attractive to buyers, says Tom Mooney of O’Conor & Mooney Realtors. It’s one of the best cities to invest in real estate. “We’re more affordable than many other areas on the east coast. We’re a nice alternative to folks who work in the Washington, D.C. area and want to buy down there. Some of the prices out there are not attainable. They look to Baltimore as a lower-priced alternative.”
