Here's the latest *anecdotal* picture of real estate in my area of the country---which is just one area, so don't blast me for posting it.
(I do wonder about that person who says he's investing in rental condos.....geez...condos are NOT good investment property, but you can't tell these people anything when they get an idea in their heads.)
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washingtonpost.com
New Milestone for Hot Real Estate
Buoyed by Shrinking Rates, Buyers Dismiss Bubble Talk
By John M. Berry and Caroline E. Mayer
Washington Post Staff Writers
Friday, July 26, 2002; Page A01
The nation's housing market, which cushioned the recession and is helping sustain the economic recovery, showed continued strength last month despite growing worries among some economists that home prices could be a bubble waiting to burst like the stock market.
New-home sales reached a record annual rate in June of a little more than 1 million units, the Commerce Department reported yesterday. The combination of hefty demand and falling mortgage rates, which hit 30-year lows this week, has continued to push up the value of many homes, offsetting part of the household wealth lost in the stock market plunge.
Many homeowners are refinancing their mortgages to lower their payments or to tap added equity to pay off other debt or support additional consumer spending, a key ingredient in this year's recovery.
Meanwhile, low rates are also encouraging many investors to buy homes as rental property, an investment they think may be a better bet than stocks.
"Stocks I'm leaving alone," said Ray Porter of Leesburg, who is negotiating to buy a condo in Reston that would be his third real estate acquisition in two years. "Real estate, in my opinion, is the safest bet now -- with the exception of holding cash, and that only yields 2 to 4 percent; that only keeps up with inflation."
Some analysts believe the large run-up in home values in many parts of the country -- particularly areas where prices have risen faster than incomes such as Washington, New York, Boston and Southern California -- reflect a real estate bubble doomed to burst. They argue that the big stock gains of recent years helped propel housing prices upward in certain areas, and those price levels can't be sustained in a falling stock market.
And some worry that without as much stock or housing wealth to draw from, consumers will cut their spending, undermining the economic recovery.
However, with personal incomes continuing to rise, the population growing and everyone needing shelter, Federal Reserve Chairman Alan Greenspan and others discount worries of a housing bubble and the likelihood of a significant, widespread drop in home prices that would hurt the economy.
Sales of existing homes unexpectedly fell last month to an annual rate of 5.07 million units, from 5.74 million in May, the National Association of Realtors said yesterday, but analysts said mortgage applications suggest that figure is likely to rebound in July.
Meanwhile the huge drop in stock prices is partly responsible for the decline in mortgage rates. Many investors have been pulling money out of stocks and buying bonds, which has pushed down yields on bonds to which mortgage rates are indirectly linked.
Rates on 30-year fixed-rate mortgages dropped to a nationwide average of 6.34 percent, the lowest level since 1971 when Freddie Mac began tracking rates, the mortgage agency said yesterday. The average 15-year rate dipped to 5.76 percent.
Throughout last year's economic slump, mortgage rates of around 7 percent kept housing strong and their decline since has kept the market booming in many parts of the country.
Today, Diane Sartori plans to complete her fourth financing for the Fairfax home she bought two years ago. She started off with a five-year adjustable mortgage with an interest rate of 7 5/8 percent. Her new mortgage will be the same type but with a rate almost 2 percentage points lower, saving her about $500 a month.
Sartori said she is not happy about all the time and paperwork involved, but "looking out five years, I see the savings are worth the time." She said she is expecting a baby in September and plans to use the savings for furniture and child-care expenses.
"It used to be that when the refi rushes came, homeowners came for straight refinancing, trying to bring their monthly payments down," said John Staples of Sigma Financial Services in McLean. "But now it's very varied. [Many] are cashing out -- taking higher mortgages as their homes appreciate -- to pay for college, renovate their house, help pay to care for their elderly parents."
Among the latter is Jill Lancelot of Takoma Park, who decided to increase her $120,000 mortgage to $200,000 to get funds she may need to help pay for nursing care for her mother and to help cover some costs of repairs to her house and her mom's house.
"I don't think I would have done this -- turned to this so quickly -- if it weren't for the low interest rate," Lancelot said.
Maury N. Harris, chief economist at UBS Warburg in New York, said the national median price of an existing home sold last month, at $163,500, was 7.4 percent higher than in June 2001.
"Such gains expand household wealth and offset the losses suffered recently in the equity slump," Harris said. "Moreover, with mortgage rates low, consumers can readily tap that added wealth during mortgage refinancings. Thus, housing strength likely is helping to sustain the recovery."
Locally, economists expect housing price increases to slow down, perhaps sharply, after the 20 percent appreciation recorded in existing home sales over the past year. David Lereah, chief economist for the National Assocation of Realtors, said, "I don't hear the sound of popping" from any real-estate bubble in Washington, particularly as inventories remain lean. But, he added, he would not be surprised to see prices slow down, increasing only about 5 percent annually.
But the stock market is a concern for some customers, said Penny Yerks of Weichert Realtors' McLean office. "People are petrified of what's happening in the stock market. It's a very sobering experience. . . . Many people are in a quandary as to what to do," including whether to invest in real estate.
"We in the real-estate industry feel that people will feel more secure in putting money in real estate," she said, "but what they want to know is are these really the value houses should be or will they come down?"
One effect of the declining stock market may be to dampen the upper end of the housing market in some regions, say some in the industry.
"Anything selling under $350,000 is selling overnight, but anything about $600,000 is taking longer to sell," said Mary Charters, a broker/owner of Keller Williams Maryland Realtors in Gaithersburg whose office sells properties in upper Montgomery County. "I've got a couple of houses on the market for 47 to 90 days; last year they would have been sold in a week," she said.
In the District, the sales of homes over $1 million have slowed somewhat since the first three months of 2002, but overall sales are up from last year. This month, sales of homes worth $1 million and up are expected to be close to last year. There also are a lot more higher-priced homes for sale this year -- but Fred Kendrick of Coldwell Banker Pardoe suggests that may be due to the sharp increase in prices: The average price of a District house is up 12 percent this year.
Yerks of Weichert said the local market for high-priced homes "is still moving. I've had four contracts in the past two days."
Whatever the risk of a bubble, many buyers and owners refinanciers are taking advantage of the low rates.
"As rates keep dropping, it's making it easier for me to make the payments," said Katie Goffredo of Columbia, who is looking forward to buying her first home on her own. She said yesterday she was preparing to offer a contract on a $200,000 condominium in Gaithersburg, about $35,000 more than she thought she could afford six weeks ago. If rates were higher, she "might have had to continue to rent" until she could come up with a larger down payment, she said.
© 2002 The Washington Post Company |
