Spring Forward: Harford Home Sales Surge in Final Days of Tax Credit

The closing days of a major federal tax credit drew hundreds of new buyers into Harford County’s real estate marketplace, but economists were divided on whether the resurgence will continue without that incentive while local Realtors hoped it would jumpstart the first wave of BRAC-related sales.

The total number of units sold countywide in April jumped 79 percent from the same month a year ago, to 245 from 137 according to the Realtor-owned Metropolitan Regional Information Systems Inc., which tracks monthly home sales data. The number of properties under contract also shot up, to 279 from 159 in April 2009, a 75.5 percent increase.

The increase in units sold in Harford far exceeded that of other Baltimore-area counties, which included a 43 percent jump in Baltimore County, 25 percent in Baltimore City, and 51 percent in Cecil County.

The median sale price of Harford homes—the price at which half sold for more and half for less—slipped slightly last month to $227,557 from $230,000, a decrease of 1.06 percent. That price has fallen nearly every month since the economic downturn began.

Still, local Realtors said the upswing was a welcome change that they hoped would continue through the remainder of the year.

“For my own office, it was one of the best months we’ve had in the last five years, even going back to the good times,” said Judy Isom, president of the Harford County Association of Realtors and a Realtor with Keller Williams American Premier in Bel Air. “It was very invigorating.”

Buyers rushed to take advantage of an $8,000 federal tax credit offered to first-time homebuyers and $6,500 for some current owners. To earn the credit, buyers must have signed a contract by April 30 and deals must close by June 30.

The tax credit was originally set to expire on November 30, but was extended until April 30. And as they did last fall when they believed the credit would expire, buyers rushed to the market to take advantage.

The number of units sold in the county in August, September, and October saw steady increases over the year before, culminating in November when 259 units were sold, an 81.12 percent increase over the previous year. But once November passed and the tax credit was extended, buyers’ urgency disappeared; December saw just a 1.88 percent increase in units sold from the prior year.

Some national economists warned that the same thing may happen now, but this time during the late spring and summer months which are important to the real estate market.

“We suspect that the homebuyer tax credits are, for the most part, stealing demand from later this summer, rather than creating new demand,” Dr. Stan Humphries, chief economist for online real estate Web site Zillow.com said in a statement. “Even with the tax credits in place during the first quarter, inventory levels were rising, and home values continued to decline at a steady clip, rather than steadying. Because of these factors, we believe national home values are more likely to reach bottom in the third quarter of 2010, rather than in the second quarter, as we had hoped.

But for Harford County the tax credit may have only been an appetizer to a main course of BRAC-fueled home sales which could begin in earnest later this year.

“I don’t think in central Maryland there will be a complete evaporation of momentum,” said Anirban Basu, president and CEO of Baltimore-based Sage Policy Group. “It may be that the federal tax credit provided Harford County with a housing market jumpstart and now base realignment will provide a promising continuation of that momentum.”

Realtors have begun selling a few homes to buyers identifying themselves as BRAC transplants but many more are on the way, leading county officials to believe that housing sales won’t slide all the way back down to their pre-tax credit levels.

“I think it will tail off because the credit will sunset, but we’re seeing a consistent run on houses,” said Jim Richardson, the county’s director of economic development.

Throughout last fall’s ramp-up in sales and the surge last month, the median sale price of homes continued to slide, falling from August through December to an average of $236,700, a 6.85 percent drop from the same period in 2008.

It’s tempting to believe that those figures mean Harford homes continue to lose value with so many on the market, but the numbers may be misleading, Basu said.

“It may not be that supply is greater than demand, because the tax credit has been biased toward first-time homebuyers that by cheaper homes and pull down the average and median sale prices,” he said. “My presumption is that the median price [decline presented in MRIS data] overstates the actual figures.”

That could be the case; the median sale price of a home in Harford County in January, after the fall rush to receive the tax credit had ended, remained flat from the year before at $229,000.

A more accurate assessment of the value sellers are reaping from their homes might be the comparison of the sale price as a percentage of the home’s initial listed price, also tracked by MRIS. The delta between the two can be a sign of buyer demand, as competing offers drive closer to the seller’s asking price.

While the figures have plummeted from highs of 97 and 98 percent in the Baltimore area during the height of the housing market, sellers saw solid upticks during the fall months and again in March and April compared to the same time in 2009.

Richardson said home prices won’t return to pre-2005 levels, but expected owners would see at least some increase in value as the full wave of BRAC employees arrive and snap up the county’s existing home inventory.

The number of building permits issued from January to April rose slightly compared to the same period last year, from 103 to 116, according to Richardson. But that figure is a better indicator of the health of the county’s housing pipeline only–on its own, it isn’t a viable measure of the current state of the county’s real estate market or economy.

However, more new homes will be needed to meet the demands of BRAC. Richardson said he believes approximately 9,000 new homes will be needed to cover the newcomers. But the number of active listings countywide stood at 1,739 on April 27 according to MRIS, far short of what might be needed.

“It’s an ‘if you build it, they will come’ thing,” he said.

Realtors, meanwhile, hope that “they” will come, and that BRAC will build off of the headstart provided by the federal tax credit to create a field of dreams in Harford not seen elsewhere in the state.

“The concern is that once the tax credit is over, what do we do? Are we being overly optimistic? I don’t have the answer to that,” Isom said. “That may be true for some other areas, but I firmly believe that we’re going to be better off than our sister counties.”