Continued Economic Recovery and a Tight but Easing Home Sales Market in the Baltimore HMA

Continued Economic Recovery and a Tight but Easing Home Sales Market in the Baltimore HMA

Diana Villavicencio is a regional economist in the Boston Regional Office for HUD's Economic and Market Analysis Division

HUD’s Comprehensive Housing Market Analyses provide information on changes in local economies, housing markets, and populations and provide 3-year forecasts for demand in the area. This article is part of a series that sheds light on the content of these analyses.

The Baltimore-Columbia-Towson Housing Market Area (Baltimore HMA) in north-central Maryland is coterminous with the metropolitan statistical area of the same name and includes the independent city of Baltimore and the counties of Anne Arundel, Baltimore, Carroll, Harford, Howard, and Queen Anne’s. The education and health services sector, with 19 percent of total jobs in the HMA, has a strong impact on the local economy thanks to the presence of Johns Hopkins University and The Johns Hopkins Health System Corporation. In 2022, the combined economic impact of the university and health system totaled $15.1 billion statewide (Johns Hopkins University and Medicine Economic Impact Report, 2022). The HMA’s population is estimated at 2.83 million as of June 1, 2023, representing an average decrease of 0.1 percent annually since April 2020 because net out-migration has averaged 6,225 people per year, offsetting the net natural increase, which averaged 2,975 people annually. A recent Comprehensive Housing Market Analysis highlighted the Baltimore HMA and reflects local conditions as of June 1, 2023.

The local economy continues to recover, with current payrolls 2 percent below prepandemic levels in 2019

Nonfarm payrolls in the Baltimore HMA increased during the 12 months ending May 2023, and the number of jobs is 5 percent higher than in 2020, when the COVID-19 pandemic caused significant job losses. During the 12 months ending May 2023, nonfarm payrolls rose by 17,000 jobs, or 1.2 percent, from a year earlier, to 1.40 million jobs compared with a gain of 4.1 percent during the 12 months ending May 2022. Despite continued job gains, payrolls in the HMA are 2 percent below the 2019 high of 1.43 million jobs because 97,400 jobs were lost in 2020. By comparison, nonfarm payrolls in the nation as a whole rose at a 3.5 percent rate during the 12 months ending May 2023 and are 2.1 percent above their prepandemic high.

Job growth in the HMA occurred in 8 of the 11 payroll sectors during the 12 months ending May 2023. The education and health services sector grew by 4,100 jobs, or 1.6 percent, to 267,100 jobs. Spurring recent job growth in the sector is the anticipated October 2023 completion of the three-story, 117,000-square-foot building at Greater Baltimore Medical Center, affiliated with The Johns Hopkins Health System Corporation. Despite recent job gains in the sector following losses at the onset of the pandemic, jobs in the sector are 5 percent below 2019 levels, partly because of slow job recovery and continued net out-migration.

During the next 3 years, nonfarm payrolls are expected to increase by an average of 15,500 jobs, or 1.1 percent, annually, and jobs are projected to surpass 2019 levels during the next 2 years. Widespread job growth is expected across most sectors of the economy, especially in the education and health services sector.

Rising mortgage rates caused demand for sales housing to decline, and apartment absorption is falling while new deliveries are elevated

The home sales market in the HMA is tight but easing, with an estimated vacancy rate of 1.5 percent as of June 1, 2023, down from 1.6 percent in April 2020. Sales market conditions have eased since mid-2021, when mortgage interest rates reached their lowest levels in more than 50 years, triggering a surge in homebuying. Partly because of rising interest rates, the for-sale inventory rose to 1.3 months of supply during May 2023, up from 0.9 months a year earlier (Bright MLS, Inc.), and the pace of home sales in the HMA has declined sharply. During the 12 months ending May 2023, home sales fell 30 percent year over year to 41,950 homes compared with a 1 percent decrease a year earlier. Home sales price growth slowed to 4 percent year over year during the 12 months ending May 2023, reaching a record high of $411,300, compared with an 8 percent increase a year ago. Weakening sales demand during the recent 12-month period caused builders to cut back on new home construction. During the 12 months ending May 2023, 3,150 new homes were permitted, down 24 percent from the 12 months ending May 2022. During the next 3 years, demand is estimated for 11,950 new homes.

The overall rental market in the HMA is slightly soft, with an estimated 8.7 percent vacancy rate, up from 8.3 percent in April 2020. Apartment market conditions transitioned to slightly soft as of the second quarter of 2023 compared with conditions ranging from balanced to tight during the same quarters from 2020 through 2022. Continued net out-migration and increased new apartment completions combined with lower apartment unit absorption as of the second quarter of 2023 contributed to rising vacancy rates. As of the second quarter of 2023, the apartment vacancy rate was 7.0 percent, up from 4.6 percent as of the second quarter of 2022 (CoStar Group). The average apartment rent rose 2 percent year over year to $1,634 as of the second quarter of 2023 compared with a 7 percent increase a year earlier. Despite indications that the rental market is cooling, the number of rental units permitted rose 49 percent to 4,550 units during the 12 months ending May 2023, one of the highest levels on record. During the next 3 years, demand is estimated for 4,565 rental units.