You can’t blame Jerry Zarella for feeling like a winner in America’s housing sweepstakes. For seven months, there was no interest in his 7,500 square-foot, four-bedroom estate in East Greenwich, R.I.
Then in April, the high-end market caught fire and Zarella was choosing among three offers, all starting at his $2.5 million asking price. “There was movement on all three, but one fellow went $100,000 more,” said Zarella. "So it’s kind of tough to say no. I was delighted.”
Housing prices across the country are through the roof — up more than 7 percent in 2003, spurring fears of a bubble.
Some 18 miles south of Boston, in Hingham, Mass., where the market is as hot as the harbor is cold, real estate agent Gail Petersen Bell hears those worries from buyers all the time. “We talk about it," she said. "They acknowledge it … and then they buy anyway.”
Why? Because homes have been Americans’ best investment.
In Hingham, Bell says houses have appreciated 10 to 12 percent in each of the last five years. That’s good news for sellers but makes it even tougher for buyers.
“There are no bargains,” said Bell. “And it is not a buyer’s market. It has continued to be a seller’s market.”
Pamela Copeman is caught in that catch-22. “The good news is that our home has appreciated and it’s worth a mint," she said. "The bad news is that anything we’re looking at is worth a mint and a half.”
Real estate agent Bell says, as a consequence, bidding wars are common in Hingham. Her office has been involved in at least half dozen in the last six months — one particularly memorable. “It had four offers on it," she said. "And it ended up selling for about $70,000 over the asking price.”
Not only are prices rising, but mortgage rates are rising, too — creeping up from February’s historic lows, to now well over 6 percent.
Professor Bill Wheaton tracks real estate at the Massachusetts Institute of Technology. “I think price appreciation will slow as interest rates rise, because fewer people will come into the market," he said. "But at the same time the people who are in the market will not be pushed out because they are protected by fixed-rate mortgages.”
Wheaton doesn’t see a crash, but real estate agent Bell says higher rates will cool this seller’s market. “As long as we stay under 8 percent, we’re still going to see a very active mid-range market," said Bell. "Beyond the 8 percent, for some reason, that’s a psychological barrier for many people."