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Realities of Real Estate: Looking high and low for trends

Over the past decade, the housing market has been through such turmoil that it’s difficult to define what’s normal anymore, and the degree to which the healing process has taken place can vary substantially depending on housing type and geographic location.

The market is not monolithic, and while demand for one category of housing might be strong and growing, others can lag behind, still feeling the effects of a great recession. In past columns, we’ve taken a look at how real estate varies across the country. Places like Florida and Las Vegas were all but decimated when the bubble burst; whereas the Washington area, with the influence of an ever-growing federal government, skated by and was less severely impacted by housing downturn.

Beyond geographic distinctions, real estate has also evolved differently depending on a property’s price range. In this week’s column, we’ll take a look at our home turf of Anne Arundel County and examine how housing has performed for lower-, middle- and high-priced homes. What constitutes the price for those three categories is somewhat of a subjective call, but for this analysis, we’ll define lower-priced as under $500,000, middle as $500,000 to $1 million and high-priced as over $1 million.

Some might say that $495,000 isn’t exactly a low-priced home. However, in Anne Arundel County, these are the price points where we tend to see differences in market behavior. Additionally, we have only used data for standard sales on detached homes, so as to eliminate the influence of distressed sales (foreclosures and short sales) and investor activity. That should help provide more of an apples to apples comparison and better illustrate how the market has changed for traditional home owners.

Lower-priced homes: One of the reasons we make the cut at $500,000 for lower-priced home is that the Federal Housing Authority limit for a government-backed loan in Anne Arundel County is $494,500. As a result, large numbers of potential buyers don’t qualify to purchase homes above $500,000, because they can’t afford the higher down payments associated with a conventional loan.

Oddly enough, the FHA limit for Calvert County ($625,000) is actually higher than Anne Arundel, even though most homes in Calvert are substantially less expensive. The reason is that Anne Arundel is part of the Baltimore, Columbia, Towson metro market, and Calvert is lumped in with the much higher-priced Washington, Arlington, Alexandria areas.

In 2005, homes priced below $500,000 accounted for just under 50 percent of gross sales (meaning total dollar volume) for Anne Arundel County. As the housing market imploded and the economy began to hit the skids, the total share of volume for homes in this category started to increase, reaching a high of over 57 percent in 2009.

Understandably, home buyers were setting their sights lower with respect to price, and tighter lending qualification requirements pushed more people into government-backed mortgages. Nevertheless, by 2013, the share of sub-$500,000 properties has returned to where it was in 2005 and is now at 49.7 percent.

Middle-priced homes: This category is pretty much the reverse image of lower-priced homes. As the sales of lower-priced homes increased, it took share from that slice in the middle. The low point for homes in the $500,000 to $1 million range is the same as the high point for those in the under $500,000 group. Presently, homes in the middle account for 36.8 percent of sales, up from the bottom of 30.3 percent in 2009.

Generally, middle-priced homes have had the most difficulty. Folks on the lower end can get a government loan, and people on the high end can afford a lot of money down or even pay all cash. Just like the economy as a whole, it’s the people in the middle who tend to get squeezed.

Recently however, banks have started to loosen up a bit, and an increasing number of buyers can now qualify for mortgages in this price range. Plus, new home construction has begun to improve, and many properties of that type also fall into the $500,000 to $1 million category. Especially since 2011, the middle has seen steady improvement, and these gains are expected to continue. Although the economy isn’t that great nationwide, Anne Arundel County benefits from the halo effect of Washington, and that has allowed the middle-class to recover faster than we’ve seen elsewhere.

High-priced homes: When you get above $1 million, you’re in rarified air, even for a fairly wealthy county like Anne Arundel. In 2013, there were only 148 of such homes sold. That compares with 968 in the $500,000 to $1 million group and 2,643 for those below $500,000.

As has been said, the rich are always rich, but when the stock market plummeted in 2008, even the well-heeled pulled in their horns, and less than 100 high-priced homes were sold in 2009. Even today, these properties can be a tough sell with more money-conscious buyers wary of being burned on a high-end home. The average days on the market for the million-plus house is almost 200, compared with 88 days for property under a million.

Even though a strong stock market has sustained the trust funds and 401k plans for buyers in this group, the extreme difficulty in obtaining jumbo mortgage loans has kept a lid on sales for high-priced homes. This, coupled with a thriftier attitude for buyers in general have made expensive homes a slower sell.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is