Sunday, December 12, 2004

Houses hotter than hot

Another record year shapes up, driven by first-time buyers

David Tyler, Democrat & Chronicle, Rochester
Staff writer

(December 12, 2004) — When Ann Pennella and Dave Esposito moved from Baltimore to Henrietta this fall, their search for a new home turned out better than they expected.

The husband and wife, who were moving here to be closer to her family, found a renovated 1850s-built farmhouse for a fraction of what they would have paid in Maryland.

"When we saw this, we said this is too good to pass up," said Pennella, 49.

Pennella's case is an example of the sales that are spurring the Rochester area's strongest housing market in years. According to the Greater Rochester Association of Realtors, single-family existing home sales this year are on pace to set the third record in five years.

Since the end of 2001, more than 37,000 single-family houses have been sold in the association's 11-county survey area, for a total of more than $4.6 billion, officials said.

That's made real estate, which added 450 area jobs in the last three years, a bright spot in a mostly stagnant local economy. Overall, more than 7,000 people work in some form of real estate in the Rochester area, contributing $188 million in annual payroll.

"It is certainly a significant generator of income for the community," said Kent Gardner, director of economic analysis at the Center for Governmental Research.

Real estate agents say they don't see the boom ending anytime soon, either locally or nationally, where home sales are on pace for the fourth-best year ever. Despite dire predictions of a housing bubble that would cause values and sales to plummet, buyers continue to snatch up houses at near-record levels, allowing U.S. homebuyers an average profit of $11,700. Locally, the median price of houses rose 13 percent between October 2002 and October 2004, to $106,500.

The reason: Low interest rates continue to attract more first-time homebuyers, agents said. That activity then spurs confidence in the market, especially the neighborhood around particular sales.

Locally, the market has boosted the economies of the inner-ring suburbs, traditional housing hotbeds, according to a Democrat and Chronicle analysis of regional sales numbers. Sales in Henrietta rose 6 percent between 2002 and 2003, according to data from the regional association. Sales in Brighton were up 10.3 percent over that time. Sales in Chili were up more than 12 percent.

But outer-ring suburbs also contributed. For example, sales in Sweden rose more than 50 percent.

And strong sales in the city of Rochester are also boosting results. Sales in the 18th Ward jumped 20 percent. Sales in the 19th Ward rose 15.2 percent. In 2004, sales in both wards have nearly matched 2003's totals in just over 11 months. The 23rd Ward, in Charlotte, saw sales jump more than 14 percent.

Strong sales and increasing values are helpful to local governments because it means they can collect more money without raising tax rates, economist Gardner said.

And Bob Miglioratti, chairman of the Greater Rochester Association of Realtors, said lower prices combine with the unique features of older houses to make housing in the city and inner-ring suburbs attractive to buyers.

Renters are buyers

With the low rates, people who would ordinarily rent a house are instead becoming first-time homebuyers with mortgage payments oftentimes less than what they would pay for rent, said Mike McNamara, chairman of Century 21 Red Coach Realty in Pittsford.

"Once those first-timers buy, it allows the people who just sold to move their equity into the next range," McNamara said. "The buyers in the $120s go to the $160s, and then those buyers move into the $180s and the $200s and so on."

Chris Hallauer, 30, is currently looking for a house in the city after renting for several years. He estimates his monthly payment will be about $700, just slightly more than he's currently paying for rent.

"I'm in that time in my life where I want to have something I can call my own and ... the payments seem pretty reasonable."

The activity in the city is becoming self-sustaining, said Miglioratti. "Activity begets more activity. When you bring 20,000 people to (new subdivision) Newcroft Park over the course of a couple weekends for a home show, that makes the $100,000 buyer more comfortable in buying the surrounding neighborhood."

Miglioratti credits the city's efforts to develop the Genesee River waterfront with creating interest in areas such as the South Wedge and Charlotte. Projects such as the Sagamore on East luxury condominium project downtown are creating a buzz about city living, he said.

"When you see a blip of activity, you can relate a city policy or initiative to just about every one."

Nate Ellison, a Nothnagle Realtors broker, said the city's lower prices also draw buyers. "People are learning that if they buy a home in the South Wedge or Browncroft or Cobbs Hill, they get a safe neighborhood and the benefits of city living."

Sheila Walsh of Sheila Walsh Realty in Rochester agrees. She said that despite layoffs, a strong relocation business is helping to keep the market in the city strong.

"When people come in from outside the area they see how reasonable the market is compared to other areas and that keeps the market strong."

This year in Webster, sales through the middle of November almost matched 2003's full-year record. Chuck Hilbert, of Hilbert Realty in Webster, credits the town's strong new housing market with creating demand for existing homes. "I think people flock to the newer homes and housing stock that's here," he said. "If they want a newer home, they can find one here."

Chris Parsnip, 37, and his family are settling in Penfield after a two-month search for a house. Parsnip, a Rochester native who wanted to come back to the area after living in New York City, said he was surprised to see so much real estate activity.

"The house we just bought was built in 2001 and sold once, and now we're buying it again for 10 percent more than the second buyer paid," he said.

In Irondequoit, sales rose more than 11 percent between 2002 and 2003. There, where homes are older than in Webster, buyers such as Marian Bauman-O'Dell, 50, said they like the affordability of homes.

"We needed a four-bedroom house and I was surprised we could find one in our price range so quickly," she said. "I've been a homeowner for so long, it's preferable to renting. If I'm going to dump money into a property that I'm living in, I'd rather it be one I owned."

National view

The idea of a tangible asset will help keep the real estate market strong nationally, said Bryan Rundell, the Kansas City-based author of Rogue Real Estate Investor ($97, Mind Like Water Inc.).

That confidence in real estate should prevent any bubble from occurring in the immediate future, he said.

"If I put my home on the market, I can call 10 other people in my neighborhood and find out what my house is worth. A home will not be obsolete overnight, like a business model can be."

People still look at housing as a solid investment, agreed Bob Armbruster, president of the National Association of Mortgage Brokers. "It's like taking money from one account and putting it in another" with higher interest, he said. The low interest rates are expanding the population of first-time homebuyers as well.

"Nationally, there is a push for minorities and immigrants and there are programs designed to help those populations," he said.

The real estate market nationally is on pace for the fourth best year ever. The National Association of Realtors expects 6.75 million existing single-family homes to sell this year.

With the average $11,700 profit from each transaction, that means a continuing boost to the economy. A study by two professors at American University in Washington, D.C., found that for every dollar increase in a home's value, homeowners can be expected to spend an extra 8 cents in the year they sell their home.

The long picture

The market could frost over when more baby boomers stop buying houses and start moving into retirement communities, Rundell said.

"But, nationally, that could be eight or 10 years off."

Linda Wilson, an agent with Nothnagle Realtors' Brighton office, said she doesn't expect any major drop in sales unless mortgage rates rise by more than two percentage points.

"As long as it's still affordable (to take out a loan) people will still buy houses," she said.

Locally, real estate officials say they are just enjoying the ride and they don't want to consider when the end could come.

"We don't want to answer that question," Miglioratti said, laughing. "We don't even like it being asked."


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