Rates, Economy Spur Homeowners to Trade Up

Marie Merida, a 40-something insurance executive in Washington, is the sort of homebuyer who is driving home sales through the roof this year.

Lured by low mortgage rates, she traded up last week into a $270,000 house in Washington's affluent Shepard Park neighborhood. Her mortgage is $100,000 larger than the one she had for nine years on the home she sold, within two and a half weeks of putting it on the market.

Economists say low interest rates and a robust sense of well-being among consumers are key to understanding why home sales just won't slow down this year.

"You have a consumer who is ready to get in the market," said Jason Altman, research economist at the National Association of Realtors. "You can't drive a block without seeing a for-sale sign."

Ms. Merida has earned good bonuses in the past couple of years and is confident about her future prospects, she said.

"I thought the time was right (to move) for a couple of factors: the low interest rates and the strength of the economy," she said. "I felt there were a number of people out there who are ready, willing, and able to buy." She said her friends who work at high-tech companies in the area are also trading up.

Homes were resold at a record pace in October-4.4 million on an annualized basis. It was the third record-setting month in a row.

Home sales usually slump in the winter, because cold weather discourages house shopping. But the Mortgage Bankers Association's index of purchase applications is close to cyclical highs these days. "Expect strong home sales in November and December," said David Lereah, chief economist at the trade group.

Resales for the year are expected to hit 4.19 million homes, exceeding last year's record 4.09 million by 2.6%.

The increase defies earlier predictions that sales would decline this year. Economists didn't think last year's high demand could be sustained in 1997, said Mr. Altman of the Realtors group.

Mortgage lenders are contributing to the sales boom, it appears. Ms. Merida said she was encouraged to buy and sell right now because mortgage lenders seemed eager for her business.

She shopped around for a good rate before she bought her house. "A couple of them did say to me, 'If you do get lower rates, come back to us,'" she said.

She ended up with a 30-year mortgage at 6.625% and 2 points from PHH Mortgage Services. "Within two hours, they gave me a preliminary approval," she said.

Consumers are bullish on home purchases because job growth is strong, layoffs are down, and house prices are appreciating, said Ken Goldstein, economist at the Conference Board in New York.

In West Bloomfield, Mich., Dorin and Christina, both 43, traded up to a $237,000 house last week, a few months after getting the immigration papers that allow them to live permanently in the United States. The couple asked to have their last name withheld.

Christina said that her husband, a computer specialist, proved in the few months he's had a work permit, that "he can earn a lot of money."

They are "a little bit afraid" of an economic downturn over the next two years, she said. But she said they believe they'll fare well even in a recession. "We think that this computer business is strong enough for the next 10 years," she said.

Their real estate agent, Jerry McKeon, said homes in Oakland County, a suburban Detroit county, have appreciated annually by 5% to 15%, thanks to the booming automobile industry. Mr. McKeon is a vice president at Max Broock Inc. Realtors in Bloomfield Hills.

Among upper-end consumers, gains in the stock market have helped boost home sales, said Harry Glenos, senior vice president for industry risk analysis at NationsBank in Dallas.

"In Dallas, (there is) a huge boom in the million-plus market," Mr. Glenos said. "Interest rates don't really affect those markets that much. People are buying their mansions with the capital gains they've made."

Attesting to the strength of the upper end, sales of homes above $500,000 made up 2.53% of home sales this October, up from 1.84% a year earlier, the National Association of Realtors said.

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