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First Home Sweet-Home to Last: Economic considerations for various consumers and investors eyeballing the real estate market in 2017

Mar 06, 2017 11:49AM ● By James Houck
By James Houck

As the U.S. and Maryland economies near the end of the first quarter of 2017, and as new administrations sow their government seeds (Donald Trump more recently and Larry Hogan continuously), questions concerning the economic health of both nation and state are at a fever pitch. We can observe indicators that offer some perspective about the direction of the dollar, stock markets, employment, housing, and the myriad of industries that drive our economies. And we can speculate, or forecast, their impacts on big business and small, and consumers. In the end, most of us would like to know if the overall picture is rosy, grey…or what exactly? And what does it mean for me specifically? Answering these questions is no small feat, but we’ll offer some overall context and then distill the economic outlook for our real estate market in Maryland, specifically Anne Arundel County and the Mid-Shore and how it relates to various types of real estate consumers…and developers.

In general terms—and we really don’t need a Thesaurus for description—the U.S. economy is okay-ish. There are reasons to feel good and areas that need improvement. As a nation, the temperament has improved from where it was during the financial crisis of 2007–2008, but as last November’s election proved, many citizens remain unsettled. Similarly, the late-2014 election of Maryland Governor Larry Hogan indicated that despite a fair-to-good standing Maryland economy, new leadership was the people’s choice.

We cling to the hope that change equates to improved prosperity. Recent economic indicators offer hope, but should keep us well-grounded with our expectations for significant improvement:

Numbers to feel good about:

  • U.S. Gross Domestic Product has slightly increased each quarter of each year since 2013
  • U.S. Personal Consumption Expenditures (what we spend) has increased every year since 2009
  • U.S. Unemployment has decreased every year since its peak in 2010 (same for Maryland)
  • The S&P/Case-Shiller U.S. National Home Price Index recovered to its 2006 price peak, as of August 2016
  • Maryland percentage of homes with negative equity has declined year-over-year since 2012
  • Construction is Maryland’s highest forecasted employment growth sector for 2017–2019

Numbers that killjoy:

  • U.S. Real Median Household Income is still below the 1999 peak of $59,909
  • U.S. Privately Owned Housing Starts are still well below the levels achieved from 1981–2005 (just before the financial collapse)
  • U.S. Public Debt as a Percent of GDP remains at an all-time high since 2005

Relating national economic trends to state implications can be a tricky game, but if we use the real estate market as one indicator among others, we can begin to shape the outlook for various types of consumers, of which most of our readership will classify. We can begin to see how the real estate market relates to you.

Anirban Basu, renowned economist and founder of the Sage Policy Group, Inc. based in Baltimore, offers a snapshot of what is expected in the real estate market this year:

“Recent and ongoing increases in interest rates will represent the leading challenge for the local housing market in 2017, replacing inadequate inventories of unsold homes. Home prices have been rising in recent years. The recent rise in mortgage rates has pushed monthly payments even higher, which will result in some prospective buyers leaving the market for now. Expected stimulus in the form of tax cuts and greater levels of federal outlays will help accelerate economic growth, but will also produce more inflation and rising rates. In the very near-term, the rise in mortgage rates may have a positive impact on home sales as some fence-sitters rush to transact, but that effect will be ephemeral. Over the course of 2017, the impact of higher mortgage rates will be mitigated to a certain extent by faster job and wage growth. However, many entrants into the labor market are younger workers, who either live in households with older relatives or rent. Indeed, it may be the apartment market that will be the big winner in 2017 as higher mortgage rates coupled with solid employment growth conspire to produce significant apartment leasing activity.”

Now, let’s drill down the perspectives and considerations that several types of buyers, sellers, and, even developers should expect in the coming year.

For the First-Time Home Buyer

Even if you aren’t a first-time home buyer, chances are you know someone who is or will be soon. Overall, this picture is, likely, the least rosy of those herein. According to data published by the Maryland Association of REALTORS, average and median home prices for the entire state increased slightly year over year, while the Housing Affordability Index (HAI) decreased from 76.6 percent in the first quarter of 2016 to 68 percent by quarter two. This means that “Maryland first-time home buyers had only 68 percent of the income necessary to purchase a typical starter home.” It’s important to note that the HAI is “based upon the percentage of income the typical first-time homebuyer must have to buy a typical starter home with a five percent down payment, based on a 25 percent qualifying ratio for monthly housing principal and interest to gross monthly income and assuming a 30-year amortization at the effective mortgage rate plus a PMI premium.”

Even with starter home prices increasing at an average of $30,000, one of the silver linings had been extremely low interest rates noted MAR President Bonnie Casper at the time this data was published. Not so any longer, as increases in federal interest rates will drive mortgage pricing higher. Simply put, the race is on for those looking to enter the market, as rates are not expected to go back down in the foreseeable future. Yet, there is measured optimism as local REALTOR Meggie Carpenter suggests, “Don’t fear the increase in interest rates. They are still lower than previous projections and still historically low in general.”

There is a healthy amount of entry level inventory in Anne Arundel County and throughout the Mid-Shore; locking in the most favorable interest rate as soon as possible is advisable, as well as exploring federal and state first-time home buyer programs and tax credits to assist in the process. Learn more and review qualifications through the Maryland Mortgage Program at

Selling to Buy into Your Next/Vacation Home

With the expectation of a microburst of buyers (first-time, second-time, anytime) in 2017 eager to lock in interest rates as low as possible before additional hikes, it would be reasonable to assume that the market will see swift action. Couple that with a traditionally active market associated with the spring season and you have a recipe for faster moving inventory in the first half of this year. If that’s the case, expect the market to see listing prices climb even higher until the inventory and average days on market settle down.

“Interest rates will be one of the hot button topics across the board for residential real estate. Rates are still very low but we are certain they will go up in ’17 and beyond. More and more of my clients are considering a move in the next 12 months in order to lock in a desirable rate,” says local REALTOR Travis Gray. 

This could create an ebb and flow in residential inventory, pricing, and sell-through rates that’s somewhat unpredictable. If you’re in the market to sell your property while perusing the purchase of another, continually research the comparable listings in your neighborhood and in those you’re eyeballing for the move. And having a history of comparables is helpful in evaluating specific market trends by zip code, neighborhood and, even, street. An excellent tool for doing so is the Real Property Data Search via the Maryland Department of Assessments & Taxation at the web site


For the Waterfront Home Buyer

“Traditionally, the spring and early summer markets are thought to be the best time to sell waterfront property, and statistically this may be true. However, in recent years I have seen some of my largest waterfront transactions happen in the dead of winter,” Gray says. “I think this is in part because buyers on the higher end of the market don’t tend to work on traditional buying schedules and they aren’t typically in a hurry. Rather, they tend to take their time and wait for the right property, not just for this generation, but for generations to come. I believe this is one of the reasons high-end waterfronts—$3 million-plus in our market—tend to either sell very quickly, or take up to a year-plus to sell.”

The interesting news for those perusing properties is how politics has affected the waterfront market and inventory: “Whether you love or hate [President] Trump, the election has had a positive impact on the stock market and the real estate market,” states REALTOR Charlie Buckley. “Sales of waterfront homes had a nice boost after the election as people who were worried about interest rate increases locked in their mortgage rates and their purchase. Waterfront inventory is at an historic low. [But] we believe that the next five years will be an extremely active time for real estate and show significant appreciation for waterfront homes in all price ranges.

“It is amazing how many factors shape the waterfront real estate market—some local and some international. Since a waterfront home purchase is basically a discretionary transaction, general uncertainty causes buyers to pull back from the market. Right now, though, consumer confidence is gaining strength and demand is increasing.”

Gray agrees, “I believe we will see a record number of high waterfront home sales in 2017. The Annapolis area waterfront home market has been under-valued for a long time in my opinion, but I believe we will see a steady rise in sale prices and volume in the next several years.” 

The other huge consideration regarding waterfront; critical area laws and regulations. Whether you are buying or selling, it is always a good idea to consult with an engineer who understands critical area restrictions and regulations, as well as your county and municipality.

Buyers considering waterfront properties should negotiate a reasonable feasibility study period to consult with the county/city, engineers, inspectors (pier, shoreline, boat lifts, etc.), builders, and architects to ensure the property will meet their needs (present and future).

Owners thinking about selling their waterfront home should focus on the basics (professional staging, accurate pricing, and a comprehensive marketing campaign) while paying special attention to outdoor spaces. “Desirable outdoor spaces are popular across all price points, and even more so with waterfront properties,” Gray advises. “A well done outdoor kitchen, fire pit/fireplace, patio, etc., can have a significant impact on a buyer’s emotional side of their purchase decision.”

About to Retire: Senior Living Options

If you or a loved one is considering spending their retirement in the Land of Pleasant Living, the real estate market is ready for you. Today, there are a myriad of senior living options and the market continues to grow at a pace accommodating to the Baby Boomer generation’s entry into retirement, which is to say…increasingly fast.

According to the Maryland Baby Boomer Initiative Council’s 2015 (and final report of its nine-year legislated establishment), “Maryland Baby Boomers account for 24 percent of Maryland’s total population. Overall, the state will be expecting an increase of 61 percent in terms of people who are 60-plus from 1,058,253 to 1,701,414 in 2040.”

Examples capitalizing on this market’s growth opportunity are continuing to be built. In 2016, Maryland-based developer Brightview Senior Living cut the ribbon on nearly a dozen senior living communities throughout the Mid-Atlantic, while breaking ground on several more. On Kent Island, the Bay Bridge Cove 55-plus clubhouse community opened this past December. It is the first 55-plus exclusive community built on Kent Island and touted as “scenic coastal living in a resort area between the serene and charming Eastern Shore and the bustling Western Chesapeake.” Fact: more communities from even more developers have opened or are in the works throughout the Chesapeake Bay region.

Add it all up to more senior living options than ever before. Therefore, it’s advisable to shop around. The competition for senior dollars is strong enough to favor the buyer. And, according to customer satisfaction surveys conducted by National Research, almost 60 percent of independent living residents visited two or more residential communities prior to making their choice.

Residential & Commercial Development

The big picture: According to 2017 Construction Outlook by Dodge Data & Analytics, the leading provider of data, analytics, news, and intelligence serving the North American construction industry, “New construction starts [initial project funding] in 2017 will increase five percent to $713 billion.”

At the firm’s 78th annual Outlook 2017 Executive Conference held last October at National Harbor, Dodge’s Chief Economist Robert Murray explained, “[The] construction industry has now entered a more mature phase of its expansion, one that is characterized by slower rates of growth than what took place during the 2012–2015 period, but still growth.”

Slow-to-modest growth is the applicable forecast for Maryland. Although residential construction permits for single-family housing declined three percent year-over-year for the third quarter of 2016, signs indicate that residential construction overall (which includes multifamily apartments and, even, mixed-use developments) will continue its long road to recovering from the financial crisis a decade ago. Several major residential developers—for example, Timberlake Design/Build based in Annapolis—reported revenue growth year-over-year from 2015 to ’16 and have several projects still in development.

And for those considering a property’s purchase, demolition, and re-building, there’s favorable legislative developments in play says local REALTOR Christina Palmer. “Anne Arundel County is progressing forward in revitalizing older neighborhoods with legislation that assists buyers in the demolition of the old home if re-building a new home in its place, by waving permitting fees and by giving a five-year tax break to developers and homeowners. This should definitely revitalize and rebuild our neighborhoods and generate sales.”

Another variable that Marylanders can feel proud of; green building. According to the Maryland Department of Commerce, “​​​Maryland ranks second among [all] states in the square footage of LEED-certified commercial and institutional green buildings per capita for 2015. By using less energy, LEED buildings save money for businesses and taxpayers; reduce greenhouse gas emissions; and contribute to a healthier environment for workers and the larger community.”

It is clear that, in conjunction with sustainable energy options becoming increasingly affordable and with a growing infrastructure, green buildings and especially LEED-certified construction in Maryland is in higher demand than ever before. Coupled with public initiatives and incentives to build green, expect developers to incorporate green materials, architecture, and energy into new development in our State, both commercial and residential.

2017 national forecast trends of note include:

  • Single family housing will rise 12 percent in dollars, corresponding to a nine percent increase in units 
  • Multifamily housing will be flat in dollars and down two percent in units 
  • Commercial building will increase six percent on top of the 12 percent gain estimated for 2016
  • Institutional building will advance 10 percent, resuming its expansion after pausing in 2015 and 2016
  • Manufacturing plant construction will increase six percent
  • Public works construction will improve six percent, regaining upward momentum after slipping three percent in 2016