A housing boom that won't stop
Home-buyer zeal has stayed strong through recession, terror, and interest-rate shifts.
A husband and wife in Brookline, Mass., put their condominium on the market last weekend for the rarified amount of $495,000. Sure, it was a classic Boston brownstone. But it was also a first-floor residence that sits next to a college dormitory.Skip to next paragraph
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Within eight hours, the owners had three offers on the property all above the asking price. So they decided to take it off the market, wait three weeks, and then put it up again for $50,000 more.
From Miami to Denver to Los Angeles, it's like that these days: Houses have become bank vaults.
Even as the rest of the economy was faltering, the housing market remained strong in many parts of the country, contributing to what has now become one of the biggest real estate booms in the postwar era. "I've never seen a market like this, not in 26 years in the business," says Alana Lasover, a realtor in Washington.
The question now is: Will rising interest rates finally slow the sale and price escalation of homes? In some areas, of course notably Seattle and Portland, Ore. the market has already weakened. But many other parts of the country continue to defy gravity, and realtors say the numbers have to come down at some point, don't they?
"They bounce around month-to-month," says Donald Straszheim, president of Straszheim Global Advisors, an investment firm in Los Angeles. "But when we look back at this 12 or 24 months from now, we'll say the end of 2001 and beginning of 2002 was a peak [in housing activity]."
Still, no one is ready to say, unequivocally, that the boom might be over. For one thing, the real estate market is notoriously fickle and regional, so even if the sales slow in one area, prices and new home construction are likely to keep going in many others.
In fact, many economists expect activity to stay strong despite interest rates. That's in part because any increase in the cost of borrowing provided rates stay below 10 percent will likely be counteracted by improvements in employment and income growth as the economy turns around.
There was some evidence of that this week. Figures released yesterday show that new-home sales rose 5.3 percent in February after a decline in January. Experts attribute the rise to continued low mortgage rates and mild weather.
"A year or two ago I would have been shocked to see how things are turning out [in the housing market]," says Christopher Mayer, a real-estate professor at the University of Pennsylvania's Wharton School of Business.
Washington, Chicago, Los Angeles, and Las Vegas are among the hottest markets at the moment. That's great news for people wanting to sell, but the bidding wars and lightening-quick sales can be anxious and costly moments for buyers.
"People are giving up appraisals, giving up rights to financing contingencies, putting themselves in harm's way," says Ms. Lasover, manager of Coldwell Banker Pardoe's offices in Potomac and Bethesda, Md.
In many cities, she says the upper-bracket market houses over $800,000 is soft, but anything under that goes quickly. For her, the explanation lies in demographics. "You have baby boomers who aren't going anywhere, and 30-somethings who want to buy for the first time," she says.
Lean inventories and high demand are contributing to price escalation in many areas. In Washington, for instance, median single-family home prices rose 20 percent from the end of 2000 to the end of 2001, according to the National Association of Realtors (NAR). In Boulder, Colo., the median was $472,000 last year up $80,000 from the year before.