Prince George’s home sales fall sharply in 2007

Prospective homebuyers finding it more difficult to get financing

The slump in sales across the nation has contributed to lackluster options for the county, which has had to limit spending.

‘‘This is certainly the most difficult budget year I have faced,” said County Executive Jack B. Johnson, adding that sagging real estate sales have forced the county to freeze hires and cut millions of dollars in spending.

According to Metropolitan Regional Information Systems, a company that tracks real estate listings across the Washington area, just 5,658 homes were sold in Prince George’s last year – a 42 percent drop from 2006, when the real estate market began to slow.

The drop coincides with the national housing market decline, brought on by the collapse of the sub-prime mortgage industry.

For close to a decade, relaxed rules on lending allowed banks and private companies to approve mortgages at sub-prime rates, which made it easier for borrowers with imperfect credit or very little savings to still buy a house.

But as the housing market exploded, lending standards grew more lax and borrowers began getting mortgages they couldn’t afford. As homeowners began defaulting on their loans, foreclosures jumped and national companies began declaring major losses and even bankruptcy starting last spring.

That market has made it much more difficult for prospective buyers to get financing, said Albert S. ‘‘Pete” Kyle, a professor of finance at the University of Maryland, College Park.

‘‘The bankers feel that their capital base is weak. They’ve lost money,’ Kyle said. ‘‘Now you’re seeing higher interest rates.”

And with few qualified buyers, the market has choked on its stock. According to the county association of realtors, there were more than 5,800 homes on the market last month, about a year’s supply.

Slow sales directly affect county coffers. Using transfer taxes and recordation fees, Prince George’s regularly reaps a percentage from each home sale.

The drop has caused the county to bring in about $84 million less than it did at the height of the market in 2006. Construction permits for new homes have also virtually halted, leaving the county without that source of revenue.

‘‘Last year we budgeted under the assumption that there were going to be 2,500 new units,” Johnson said at a recent meeting. ‘‘There’s no way we’re going to reach that this year.”

Though sales have dropped, prices haven’t gone as far down. The average price for a sold home in the county last year was $333,000, about $8,300 less than the average a year before.

County budget projections are that the housing market could remain low through at least mid-2009. Kyle agreed that the market shouldn’t change for at least a year, barring drastic action from the Federal Reserve.

‘‘It’s going to take some time for the credit markets to sort themselves out,” Kyle said.

E-mail Daniel Valentine at dvalentine@gazette.net.