The Buyers Are Back

By Janice Castro

-- John and Lil Cronin listed their white Dutch colonial in Milton, Mass., at 1 p.m. one day last week. At 3, Lisa Looney drove up to take a look. She liked the place. By 6 the Cronins, who were asking $210,000, had accepted a $200,000 offer from Looney and her husband. Says broker Mary Sullivan: "We were astonished at how fast it moved. But that's the way it's been here. Our customer calls have doubled in the first six weeks of 1991 compared with a year ago."

-- In Montville, N.J., homebuilder Hovnanian Enterprises had barely set up a sales trailer on the site of a planned housing project last month when buyers started lining up. Says spokesman J. Larry Sorsby: "We had no sample homes or models, and we sold the whole thing -- 78 homes -- the first weekend."

-- Stephen and Maureen Reynolds decided to buy their first home -- a four- bedroom, two-bath, 30-year-old house on a scenic lot overlooking a ravine -- as soon as they saw that the Desert Storm air campaign was a roaring success. Reynolds, who designs travel-industry software for a Houston firm, figured that if the war was going that well, his job was safe. Says he: "Interest rates were good, we had finally saved up the money, the war was coming to a quick close, housing prices were rising. The future is looking a lot better."

It certainly is. In large swaths of the U.S., from Cape Cod to Los Angeles, from San Francisco to Long Island, in New Orleans, Chicago, St. Louis and such depressed markets as Denver and Houston, signs abound that the long, bleak housing slump is easing. As the rebound percolates through one market after another, real estate agents, mortgage bankers and builders forecast a heartening home-buying surge this spring.

If you're suspicious of real estate industry hope and hype, listen to Barbara Allen, housing-industry analyst for Kidder, Peabody: "It's more than a little upturn. It's quite powerful, and it is across the country. In Chicago orders in the resale market for the first two months of the year were up smartly. In St. Louis the place is absolutely booming." Realtors who were doing the crosswords a month ago now have waiting rooms full of eager clients.

What's going on here? The U.S. is still slogging through a painful recession, and several major new economic measures fly in the face of optimism. Just last week the Bush Administration issued one of the most dismal housing reports since the depths of the 1982 recession: new-home sales declined 12% in January. At the same time, housing starts were down 13%. Sales of existing homes were off 7%, according to the National Association of Realtors. The Labor Department reported Friday that unemployment surged to 6.5% in February, up from 6.2% a month earlier, in the biggest one-month increase in four years. Most economists expect the jobless rate to approach 7% in the next six months before falling off.

That doesn't sound like a recipe for a housing revival. But in a world that has seen a Middle East ground war waged and won in 100 hours, January -- the month chronicled in those dismal federal figures -- is ancient history. In the past few weeks, growing numbers of Americans have concluded that now is the time to look for a place to call their own.

The trend isn't growing evenly in all regions, to be sure, or in all sectors of the industry. Nationwide, however, a survey of 300 builders by the National Association of Home Builders found that nearly twice as many potential buyers were shopping at new subdivisions in February as in January. The Mortgage $ Bankers Association reported last week that mortgage-application volume during February more than doubled from what it had been in December. While most of that growth came from refinancing activity as homeowners traded down to lower interest rates, the remainder represents a significant pickup in buying.

Call it the Desert Storm surge. According to TIME/CNN polls conducted by Yankelovich Clancy Shulman, the percentage of Americans who think the U.S. is pulling out of recession jumped from 31% four weeks ago to 54% last week. More dramatically, 44% of those polled said last week they expect economic conditions to get better in the coming year, while 15% expect them to become worse; those proportions have almost exactly reversed since January (see chart). Real estate agent Christine Gainey-Colombo was so discouraged by the industry slump in northern New Jersey that just a few months ago she was seriously considering giving up and returning to her former career as a nurse. Says she: "Last year you couldn't give a house away, but now the change is incredible. I put in 84 hours last week."

ReRe Avegno, a real estate agent in Metairie, a New Orleans suburb, remembers exactly when her phone started ringing off the hook: a few days into the allied air campaign, when it became clear that the U.S.-led forces in the gulf had gained the upper hand. As long as the possibility existed of a protracted and ruinously expensive war, many Americans were frozen in an anxious stasis in which they were delaying major financial decisions. Says John Tuccillo, chief economist of the National Association of Realtors: "With the flush of victory, people are going out looking for houses." Some have more to celebrate than others. In San Jose home sales have jumped an astonishing 42% since heavy rains arrived two weeks ago. Already buoyed by the war's end, some Californians are apparently beginning to believe their destructive five-year drought may finally be nearing an end.

An important reason for the new bounce in housing is the fall in mortgage interest rates. Testifying before Congress last week, Federal Reserve Chairman Alan Greenspan noted that "fixed-rate mortgage interest rates are close to their lowest levels since the late 1970s." The Federal Home Loan Mortgage Corporation reports that on average across the U.S., lenders are offering new customers fixed-rate 30-year mortgages at 9.49%, down from 10.67% last May.

Combine the lower rates with home prices that have fallen over the past / several months and housing is suddenly more affordable than it has been in years. Making home buying still easier, some banks are requiring smaller down payments than they were a few months ago, figuring that mortgages on homes at current prices are among their safest loans. That confidence seems justified: in its most recent report, the Mortgage Bankers Association noted a sharp drop in mortgage delinquency rates during the fourth quarter of 1990.

Eager shoppers in some regions are creating a buying fever that feeds on itself. Says Jon Posner, a real estate agent in Westchester County, north of New York City: "There is an extraordinary amount of pent-up demand, and buyers have generally said, 'It may go lower, but I'm not going to wait and see.' Some tell me that it's not important to get the absolute bottom price. It's like shopping for clothes. You see a suit you like, and you think the price may drop further, but on the other hand, it may get sold before that happens."

Randolph Marshall, 31, could not at first come to terms with the owners of the house he wanted to buy in Levittown, Pa. They did not want to accept a bid below $139,000, and he would not offer more than $128,000. Then, using a multiple-listing book, Marshall picked out 25 houses in the area that appealed to him. He was shocked to learn that all had been sold. Said he: "I got a little bit of buyer's panic." Marshall went back to the first home and last month signed a contract to buy it for $135,000.

Like Marshall, most of the season's eager new shoppers are first-time home buyers who are purchasing existing houses. They are generally seeking dwellings priced below $200,000. Says Posner: "People are looking at houses more as a shelter and less as an investment. They feel they are going to buy a house and they're going to live in it, and they don't expect to flip it over in a couple of years and make a bundle of money."

The most dramatic improvements in housing markets are probably in the South. Because the region has so many military bases, it was hit harder than other parts of the U.S. by the mobilization for the gulf war. Between August and January, while new-home sales fell at an annual rate of 10% in the Northeast, they fell 32% in the Southern states. Now the region will probably enjoy the healthiest rebound as many of the troops return Stateside filled with optimism about their futures and ready to invest in homes.

With all the talk about a glut of new homes and the depression in the construction industry, it's hard to believe that some experts predict a new- home shortage starting this year. But they do. The collapse of the savings and loan industry has slashed available capital at the same time that commercial banks have tightened up on lending.

Barbara Allen of Kidder, Peabody estimates U.S. demand for new housing at 1.3 million to 1.4 million units a year for the next 10 years, including replacement housing. Yet little is being invested in land development, and as Allen points out, "You can't build a house unless you have a lot that has all the roads, permits and governmental O.K.s. It takes a long time."

Desirable new subdivisions are beginning to inspire occasional bidding frenzies. Would-be buyers during the past several weeks have taken to camping out in front of homes to ensure themselves a chance to bid. The Toll Bros. development company held a grand opening the first weekend in February for a new housing project southwest of Philadelphia -- not that there was much to open. Only a single roof had been raised. Yet 400 people showed up the first day, and the initial 32 homes planned sold out within four days. When the company held an opening for a project near Washington the following week, buyers put down deposits on 14 of the first 20 homes.

A shortage of new housing will continue to boost demand for existing homes as more buyers compete for them. That will provide welcome relief to many homeowners who found selling distressingly difficult while prices were depressed. In Oak Park, Ill., Tom and Debbie Wagner put their house on the market last November after he accepted a job transfer to Ohio. Says she: "We must have had 100 people look at this house, but no one was buying." In February, when Tom left for his new job, Debbie had to stay behind with their three children. "It was getting real depressing," she recalls, "being here with three kids, all boys, and without my husband." Now that's over. Two weeks ago, they sold.

If the housing surge continues to gather momentum, as most industry economists seem to think it will, it can help to power the U.S. economy out of recession, in part by setting off a chain reaction of other purchases: furniture, linens, home electronics and all the other gear a home requires. Happily, the phenomenon seems to be affecting all regions. Even in areas like New England, which is still firmly in recession's grip, some of the better houses are selling as quickly as brokers can list them. At the Greater Boston & Real Estate Board, officials say pending sales are up 55% for the first seven weeks of the year. In Wellesley, Mass., last week a broker was just taking out his hammer to put up his sign in front of a shingled Cape Cod overlooking a lake when a man emerged from the house. "Put the sign away," said the buyer. "It's already sold."

CHART: NOT AVAILABLE

CREDIT: TIME Poll by Yankelovich Clancy Shulman

CAPTION: During the next 12 months, do you think the economic conditions in this country will:

With reporting by Robert Ajemian/Boston, Gisela Bolte/Washington and Jane Van Tassel/New York