Economy, Optimism Keep Home Resales Strong

In California's Santa Clara County, recent college graduates are buying starter homes for $300,000-often with down payments furnished by their high-tech employers.

In Cedar Rapids, Iowa, new technology and insurance jobs have spurred the sale of $65,000 condominiums among single professionals: "They're buying them like candy," says Bob Hanson of Iowa Realty in Cedar Rapids.

Markets such as these account for last week's news that single-family homes were resold at an annualized rate of 4.15 million units in the second quarter, just 1.7% below the year-earlier pace of 4.22 million resales, according to data compiled by the National Association of Realtors.

Economists say the strong economy, optimism among consumers, healthy home prices, and low mortgage rates explain the high resales.

"This has been a healthier economy than we had anticipated, and interest rates have remained at cyclical lows," says David Lereah, chief economist at the Mortgage Bankers Association.

The MBA's applications index, a good leading indicator of home sales, has climbed steadily since April, from 179.8 to 220.5 last week.

With home prices rising by about 4%, somewhat outpacing the inflation rate of 2.5%, there's "some consensus that the housing market is solid," adds Frederick E. Flick, vice president of research at the National Association of Realtors. That is a critical factor in strong resales, Mr. Flick says.

Certainly in markets like Santa Clara the signs of a housing boom are writ large.

"It started two years ago in San Jose and Silicon Valley. A lot of the people who were cashing in on stock options (in start-up high-tech firms) were buying first-time homes for $600,000 to $700,000," says Leo Saunders, Leo Saunders & Associates, Walnut Creek, Calif.

All around the San Francisco Bay area, resales are now brisk, Mr. Saunders says. It's not uncommon for sellers to get multiple offers, and the bidding begins as soon as a house is listed on the Internet, he says.

Start-up millionaires aren't the only ones buying big. Recent college graduates at high-tech firms are recruited with the offer of a down payment on ranch houses in the $300,000 range in Santa Clara County, Mr. Saunders says.

But even in markets where the economy and home price appreciation don't approach Silicon Valley's lofty levels-such as Cedar Rapids or southeastern Virginia's ports of Norfolk, Portsmouth, and Newport News-home resales have been strong.

In southeastern Virginia prices are only keeping pace with inflation, and falling in some areas, according to Dorcas Helfant, president of Coldwell Banker Helfant Realty, Virginia Beach.

But affordable interest rates, strong military employment, and the new high-tech jobs have boosted first-time home resales, she says.

The new exemption on $500,000 in capital gains on home sales will boost the sales at the upper end of the market, she adds.

In Cedar Rapids the average house sits on the market for 91 days, versus 62 days last year, says Mr. Hanson of Iowa Realty. It has to be priced just right and be in good condition, he says, to compete with a ready supply of newly built homes. Still, Mr. Hanson and his wife, Bev, describe business as "very good" thanks to strong job growth.

For Sunbelt National Mortgage Corp., Dallas, strong resales-and new home sales-have made for healthy loan volumes.

Sunbelt sees loan volume sustaining itself through the summer "because rates were a little bit higher in the beginning and came down after the homebuying season started," says James B. Witherow, president and chief executive.

Last month Sunbelt made $950 billion in home loans; about half financed home resales, and 20% were for new home purchases, Mr. Witherow says. He projects that the rest of the third quarter will be even stronger.

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