Study finds gloomy news for Md. housing industry

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A new study of the regional and national housing market paints a gloomy picture, concluding that homebuilding in Maryland has slowed considerably and hurt both jobs and revenues.

The study – conducted by the Baltimore-based Sage Policy Group for the Maryland State Builders Association – also found that declining appraisal values and an increase in foreclosures have made credit a precious commodity. Recent positive housing figures are mostly a result of tax credits through the federal stimulus package, which are set to expire, according to the study.

While the housing industry across the nation is affected, according to the study, some of the problems are particularly visible in Maryland.

The figures in the study indicate that consumers are very reluctant to purchase houses in today’s rocky economic environment. On a national level, there were 17 percent fewer home sales in June 2010 than in June 2009, when the economy was arguably in worse shape

Perhaps even more discouraging is the fact that starts of single-family homes, “which correlate to the direction of homeownership in America,” are down more than most other types of home sales, according to the report. What’s more, the number of mortgage applications has also been declining steadily despite “historically low mortgage rates.”

Critics may point out that home sales in June were considerably higher than those in May. The study argues that the increase can be credited to the impending expiration of tax credits provided by the federal economic stimulus package. The expiration date was initially June 30, and has been moved to September 30. Nevertheless, the prospect of homebuyer tax credits was enough to raise home sales for a very short period. The larger trends show that the increase was merely a blip, according to the study.

In Maryland, the outlook may be worse than that of the rest of the country. In the beginning of 2010, the number of new housing units authorized for construction in the State was less than 40% of the amount authorized in the beginning of 2005, when the housing market was at its peak.

The news is just as bad for those who construct the actual homes. The study shows that 46,700 construction jobs in Maryland were lost between December 2007 and February 2010, over a 20% decrease. Nationally, over 3 million construction-related jobs have been lost since 2005, which amounts to $145 billion in wages.

According to the study, one of the key factors behind the housing market slump is that trends over the last few years have made it more difficult for consumers to find credit. The spike in foreclosures has caused appraised values to decline, and as a result lending activity has declined as well.

The study references a survey conducted by the National Association of Homebuilders, which found that the availability of credit for acquisition, construction and development (ADC) loans has “worsened every quarter for ten quarters in a row.” Not only are such loans less common, but they have steadily fallen in value over the last three years. Uncertainty on the part of home buyers has created uncertainty on the part of those who finance home sales.

Because less credit is available, property values shrink and credit becomes even more difficult to come by. Instead of adhering to its traditional cyclical, up-and-down nature, the housing market is mired in a cycle of declining value and shrinking credit, according to the study. While consumers are less likely to purchase a house, those who do want to buy one are likely to have trouble finding the necessary credit. In June 2010, Maryland had the tenth most foreclosure activity in the Country, a chief contributing factor to credit issues.

There is almost nothing in the study that indicates that conditions might improve in the near future. In fact, the study concludes that “the homebuilding industry nationally and in Maryland is not positioned to recover in the near term.” In fact, the study predicts that because of the false improvements created by tax credits, conditions will worsen before they start to improve.

Click here to read the full Sage Policy Group report.
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