REALITY CHECK: US RESIDENTIAL BROKERS SAY MARKET SIZZLING
09:10 EDT 06/24 --But Spectre of Higher Interest Rates Could Cast Pall For First-Timers --NYC Market Very Tight, Too Much Money Chasing Too Few Properties --Current Real Estate Boom Not Comparable To Volatile 1980s
By Gary Rosenberger
NEW YORK (MktNews) - The real estate market is sizzling, in some cases far outdistancing last year's record levels, but escalating interest rates presage a modest slowdown ahead, say residential real estate brokers.
On average, brokers characterize their markets as too much demand chasing too little supply, with impressive appreciation for finer properties.
In Manhattan and outlying areas, there are so few properties being listed and so much cash chasing them, that brokers are reporting an unprecedented seller's market.
But higher interest rates are bound to drag things down a notch, especially for first-time homebuyers, who are crucial drivers of the current real-estate boom.
Average 30-year mortgage rates have risen to 7.65%, up more than 70 basis points in the last two months and up 116 basis points from their cyclical low last October, according to the Federal Home Loan Mortgage Corp.
"Every time rates go up, it does change some people's minds to the negative," said Daryl Jesperson, president of RE/MAX International, based near Denver.
He noted that while rates remain low in historical terms, "people remember what they saw five, six months ago and forget what they saw five or six years ago."
The most crucial demographic likely to be pushed out of the market is first-time homebuyers, according to Jesperson.
"The real-estate market is like a ladder -- you've got to get the first-time buyer on that first step so that everyone else has a chance to upgrade," he said.
But higher mortgage rates mean that people get less house for their money or get bumped out of a loan they would have otherwise have qualified for.
"For most people the move up in interest rates doesn't make that much of a difference, but for the first-time buyer it can," he said. "It's easy to defer a decision to buy until rates come back down."
In all likelihood they will come back down, perhaps even to reach new lows in the next two year -- provided inflation remains contained while paychecks remain strong and world economies recover, he said.
As yet, Jesperson has received no indication that higher interest rates are excluding anyone from the market.
"Right now the market is still brisk -- this is the most robust time of the year and our statistics are significantly ahead of last year," he said.
So far into 1999, RE/MAX transactions are 10%-15% ahead of last year in unit terms and dollar volumes are up 15%-20%, suggesting strong appreciation, he said.
(In Canada, RE/MAX transactions measured in dollars are up 37% -- suggesting a big recovery from the nation's Asian-influenced slump, Jesperson said.)
He also continues to see customers who don't fit the traditional profile -- single men and women, same sex couples, generation x'ers and first-generation immigrants.
"It used to be that when people got a divorce, you got two renters -- now you get two buyers," he added.
But unlike the super-heated market of the 1980s that brought about its own downturn, this market is not accompanied by "the rampant inflation" that forced steep rate hikes, fueled unemployment and crushed available credit.
"I was around for the real-estate recession of the '80s and it was a sad, sad situation," Jesperson said, adding he sees nothing on the horizon to parallel the bad old days.
"I'm still cautiously optimistic," Jesperson said. "But I don't see us topping last year when all the shooting's done. Interest rates will keep people out of the market."
In New York City, the real estate market remains about as heated as it's ever been, primarily because of a pronounced supply crunch, two local brokers said.
"We had a sluggish period between September and December, but that's all changed," said Joanne Douglas, a Corcoran Group broker based in Manhattan.
"The market is even tighter than it was last year," she said.
And it shows in the unusual demands that sellers make on their buyers, she said.
"Sellers are requesting unusual contingencies to protect themselves," Douglas said.
One of them is that the closing will be delayed until the seller is assured of a place to move into, she said.
"Buyers are agreeing to that, and that creates some very long closings," she said.
In one case, a buyer had to rent lodgings for six months while the seller house-hunted and had his own troubles getting approvals from co-op boards, she said.
"That is very outrageous for Manhattan, although I understand such (stipulations) are common in the suburbs," she said.
Another trend is that with local markets so tight, exasperated property managers are putting stringent stipulations on how many brokers get access for viewings.
"If a desirable property opens it's difficult to return the calls of all 50 brokers willing to show it, so they just call back the ones they've known for years," she said.
Meanwhile prices continue to escalate.
She said a six-room (two-bedroom) "classic" on the Park Avenue is commanding $1.15 million compared to the mid-$900,000 it would have received a year ago.
And getting past co-op boards is becoming an growing headache.
"You're competing with five or six other people, all whom are just as well off and would easily pass in a normal market," Douglas said.
"Brokers and sellers are making requirements much tougher than the co-op boards' requirements actually are," she said.
Among the people having a tough time are empty-nesters with good jobs and stable finances who want to move back into the city but can't compete with thirty-something power couples, she said.
"People are coming into this market with tremendous amounts of assets," she said.
But because of the lack of listings, things also aren't as frenetic as they were a year ago -- particularly in the Friday to Sunday period when people generally leave the city during summer.
"The only reason it's not that busy is because there's not that much to show," she said.
When something does come up, the rush is spectacular, she said.
"A broker friend of mine had a six-room open on East 75th Street yesterday, close to $1 million, and she's still showing it every 15 minutes -- she's exhausted," Douglas said.
Rather than endure the uncertainty and chaos of bidding wars, brokers are increasingly resorting to sealed bids accompanied by personal financial information, she said.
In neighboring Park Slope, Brooklyn, a traditional yuppie haven, the story is similar.
"The market here is extremely strong," said Susan Slater, a broker at Aguayo & Huebener in Brooklyn.
She described the market as containing "a lot of qualified buyers and multiple bids on good properties -- anything halfway decent doesn't last a week."
"Because the market is so strong, deals are made and fall apart -- it's a crazy time right now," Slater said.
Slater said that two years ago she sold a property in the less desirable section of South Slope in the "high $200,000s" and the same house is on the market again and likely to get "in the high $500,000s to $600,000."
The National Association of Realtors releases May existing home sales data on Friday at 10 a.m. EDT. April saw 5.24 million units sold on an annualized basis, compared to 5.42 million in March. |
