Three weeks ago, the Irvine Company opened a new "village" of 21 homes in Newport Beach, Calif., priced at $500,000 to $800,000. The deluge of customers rivaled the El Nio-driven rains: About 5,000 people so far have trooped through the homes and the company has 200 applications in hand.
In Seattle, six bidders recently competed for a snug cottage-style house, not far from city parks and museums. The house sold in two days at $40,000 over the asking price.
And in Boston, a recent survey found that 75 percent of the homes in the $800,000-to-$899,000 range are selling at or above listed prices. One in 3 homes in the $200,000 to $299,000 range are in the same top-dollar category.
On the coasts, the real estate market is starting to sizzle like the US stock market. In the past four months, home buyers in some areas have started to bid up prices in a manner reminiscent of the go-go days of the late 1980s. This week, the Commerce Department reported new home construction jumped 6 percent to the highest level in 11 years as builders, helped by mild winter weather, scrambled to meet the demand.
Fueling the frenzy are relatively low mortgage rates, a low jobless rate, some home buyers cashing in stock market gains to buy their dream house, a relatively low supply of homes for sale, and a lot of people now trying to "trade up." In addition, minorities - long left out of the American dream - are now applying for mortgages at double-digit rates.
It all adds up to a seller's market for housing.
"We're seeing a robust real-estate market in almost all areas except a few small pockets in relatively rural areas," says Van Davis, senior vice president of the Parsippany, N.J.-based Century 21 Real Estate Corp., which had record sales in January and February.
An economic bright spot
The hum in housing is one of the brightest spots in the economy. Manufacturing is beginning to slow in large part because of the economic turmoil in East Asia. But the Asian flux is benefiting housing, because it's keeping the Federal Reserve on the sidelines and mortgage rates at around 7 percent. "Housing is the sort of unexpected ace-in-the-hole in this expansion," says economist Robert Dederick of the Northern Trust Co. in Chicago.
This particular housing boom differs from some earlier ones. This time, for example, inflation is quiescent. During inflationary times, home prices often rise as investors seek to inflation-proof their assets. But the Washington-based National Association of Realtors (NAR) reported housing prices last year rose by 5 percent compared with a 2.7 percent inflation rate.
Part of the reason for the run-up is a decline in the number of houses on the market. NAR statistics indicate there are about 500,000 fewer homes for sale compared with the 1984 to 1991 period.
The same trend is true for new homes. This week's statistics indicate one of the lowest stocks of new houses in some time.
Part of the drop in inventory reflects a change in the way houses are built and sold. Developers are more likely to pre-sell new homes to avoid stretching their finances with houses built on speculation. "We are no longer in the field of dreams," says Stanley Duobinis, director of forecasting at the National Association of Home Builders in Washington. "We don't build them and [hope] they will come."
Another factor driving the market is families trading up to larger houses. "The higher-end baby boomers are now getting some equity, and they're not downsizing, they're upsizing," says Bruce Carney, a vice president at DeWolfe New England., a Lexington, Mass.-based real estate agency.
Appreciation in housing prices usually depends on location, and this boom is no different. The strongest areas of the country are the Pacific Northwest, California, the Northeast, and the Mid-Atlantic region. "The Midwest, in places like Wisconsin and Indiana, and the South have slacked off a little," says Mr. Duobinis. Still, last year, the top-ranked city for price appreciation was Charleston, S.C., which saw median housing prices increase to $110,500, up 16.7 percent.
Despite some recent lay-offs at Nike, the market remains buoyant in Portland, Ore., where average home prices are rising at about 8 percent per year. "All the numbers are up - listings, sales, and prices," says Alan Mehrwein, a Portland broker and board chairman for the area's multiple listing service.
The story's the same in Seattle. The average price of a house or condo rose from $197,372 in 1996 to $213,821 last year, and it jumped another $10,000 in the first two months of this year.
"It's hot," says David Crowell at the Seattle-King County Association of Realtors. "Our [housing] inventory is down 25 percent from a year ago, and sellers are receiving multiple offers. It's not uncommon to hear that a house sells the first day it's listed."
Parts of southern California are experiencing a similar boom. Last November, Jack Hoffmann of Venice Properties in Los Angeles carried listings for properties under $100,000. Today, he has only one listing under $200,000.
Even with high prices, Mr. Hoffmann says he's seeing a lot of first-time buyers who want to move into the funky beach community. The buyers, he says, are graphic designers, movie directors, writers, and computer manipulators who make $100,000 to $200,000 per year. "Anyone who turns ideas into things."
There is some anecdotal evidence, in fact, that as much as 40 percent of new home sales in the nation are to first-time buyers - a major shift in buying patterns. Moreover, many of those buyers are blacks or Hispanics. They now represent 20 to 30 percent of the mortgage applications.
Vacant lots for $1 million
Further south, in Orange County, the big buyers are often entrepreneurs. The Irvine Company has sold 305 vacant lots at an average price of about $1 million. "Most buyers paid cash and lived within a 10-mile radius," says Paul Kranhold, an Irvine spokesman.
When Mr. Kranhold moved to the area from San Francisco - another hot market - six months ago, he says he and his wife experienced sticker shock. The asking price for a 700-square-foot "tear down" in Corona del Mar: $399,000.
It's not much different on the other side of the country.
In Boston, last year was a record-breaker, but this year could top it by 20 percent, says Bill Kiley, president of Hunneman-Coldwell Bank.
Prices in Manhattan, meanwhile, are up about 20 percent in the past year, says Clark Halstead of the Halstead Property Co. "The city is going through one of the most robust renaissance periods ever," he says, "so there is an increased demand for places to live and a fixed supply."
This has made it harder for some New Yorkers to find the home of their dreams. Margo Kane, an independent contractor for focus group moderating, is looking for a West Side two-bedroom apartment. Since November, she says, prices for such units in "blue chip" buildings have gone from $1 million to $1.2 million to $1.3 million. "We don't want to get priced out," she says, "but panicking is not an issue."
High prices are also freezing out Ae Kyong Chung, a Manhattan-based banker, who is looking for a three-bedroom co-op for her family. She feels many of the offerings are too small or have little charm. "All I see are ugly boxes in the sky," says the mother of two.
Will the real estate bubble continue to expand?
Mr. Davis of Century 21 says his company is estimating prices will rise 9 to 11 percent this year. He say real estate often swings up and down in an exaggerated fashion. It's now on the upswing.
But Duobinis does not expect the good times to last - at least for the new housing market. The heavy traffic and healthy sales are encouraging builders. By the second half of the year, he predicts, the housing market will back off as more houses are offered for sale.
Stability would be welcome for some. "You have to wonder how much busier it can get," quips Mr. Kiley in Boston.
* Brad Knickerbocker in Ashland, Ore., and Mark Sappenfield in Boston contributed to this report.