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.
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.
Forget the price: I'll take it
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.
Those prices were certainly daunting to Marcel and Olga De Lange, who recently moved to the trendy university town. The couple found a 720-square-foot brick home that they adored. But the owners wouldn't sell it for less than $375,000.
After months of frustrated looking, the De Langes finally shifted their search to nearby Louisville, a fast-growing expanse of split-level homes. They found a house near a shopping center, without much of a view, but the price was reasonable $235,000. At the least, they figure, they'll have a good investment.
"Boulder is a virtual paradise, yet it has its price tag," says Mr. De Lange.
Why the housing market has stayed so strong, despite the recession and the terrorist attacks, remains an enigma to many experts. "Sometimes people panic when friends and neighbors get laid off, and they think they'll be next," says Edwin Mills, a long-time real-estate professor at Northwestern University in Evanston, Ill. "That just hasn't happened this time. In a sense, it's a bit of a mystery."
Low mortgage rates, which recently edged back up over 7 percent, are certainly a primary driver. Lawrence Yun, an economist at NAR, says a study his group did found that a 1 percent drop in interest rates translated into 3 million additional households who qualified to buy a home.
Yet other forces are driving the market as well including a more sophisticated house-financing system and the unusualness of the recent recession. Unemployment, currently at 5.5 percent, never rose to the peaks that it has in past downturns. It also hit businesses more than individuals. "It's very difficult to find a recession where the household sector emerged almost unscathed," says Mr. Mayer.
Still, the boom hasn't hit everywhere. It has weakened, in particular, in regions affected by the high-tech crash, such as the San Francisco Bay area and Seattle. Even in these places, though, the slight drop in prices is helping to boost sales. In Santa Clara, Calif., for instance, home of Silicon Valley, the median price of a home in February was $525,000, down 5.4 percent from a year before. Home sales, meanwhile, surged 76.7 percent.
"People who got shut out of the market during the Internet boom are jumping back in," says Jack Kyser, chief economist of the Los Angeles Economic Development Corporation, a nonprofit group that tracks economic activity statewide.
And if there was any question about the retrenchment of home buyers after Sept. 11, look no farther than Manhattan. Clark Halstead, chairman of Halstead Properties, says there was a brief period of inactivity. Then, starting in mid-December, the market turned around.
Now, he says, he's never seen so many multiple offers on a property. He compares the market to a school of fish that suddenly turns at once. "That's what happened to the buyers all of a sudden they recovered their nerve."
Bob Imperato, president of Boston Realty Associates, echoes the same sentiments. He cites the case of a buyer in Newton, Mass., who found a home he liked. He offered $30,000 more than the asking price of $795,000 and his bid came in third. "Depending on the location and the price, things can be listed and sold within the same weekend, which defies all odds and shows the experts who predict real estate trends don't really know what they're predicting," he says.