Opportunistic buyers 'skipping' into dream houses

June 13, 1993|By Ellen James Martin | Ellen James Martin,Staff Writer

From starter house to dream house.

That's the housing journey that Cathy and Bill Price took recently. The couple, both 33, took advantage of unusually low mortgage rates to trade a 1,200-square-foot townhouse in Arnold for a 2,300-square-foot colonial in the brand new Severna Park community of Jamestown.

"Low mortgage rates are allowing people to buy half again as much house as a year ago," says Jean Andrews, the Champion Realty agent who sells homes at Jamestown.

It's called "skipping a step" and trade-up buyers are doing it with unusual frequency these days, local realty officials and economists report. Low mortgage rates are allowing those homebuyers bold enough to make such a move to go from a starter home to an upper-priced property without making the usual, intermediate step, they say.

"People are taking a larger step from their starter home to their next home," reports Michael Conte, director of regional economic studies for the University of Baltimore. Gradually rising incomes among employed Marylanders, coupled with moderating home prices and low mortgage rates, have combined to allow local buyers to make housing leaps, he says.

Statistics from Champion Realty, based in Severna Park, support the notion that trade-up buyers are purchasing for the long haul, rather than planning to "flip" a property after a few years. Recently, when the realty firm conducted a survey of its buyers, it found that they expect to stay in their new home for an average of 21 years. The survey also found that buyers had remained in their last house for just 6.2 years.

For instance, Cathy and Bill Price, both employees of Nationwide Insurance in Annapolis, moved from a $117,000 townhouse directly to a $250,000 detached home on a larger lot. Had they made the move at mortgage rates that prevailed last year, their incomes wouldn't have allowed them to top the $200,000 mark, according to Ms. Andrews, the Jamestown agent.

"People are making the buy of a lifetime," says Chris Coile, president and founder of Champion Realty, based in Severna Park. "They're skipping a step because the lowest mortgage rates in 20 years allow them to increase their purchasing power by $30,000 to $40,000."

Many are refinancing

To be sure, many prospective trade-up buyers have taken advantage of the current crop of low mortgage rates by refinancing mortgages on homes they already own. Their plans are to stay put -- often with a shorter-term mortgage that will allow them to retire with greater ease.

But in recent weeks, pent-up demand for upper-end home purchases has been expressing itself with renewed vigor, says Dick Purvis, who serves as president for the Coldwell Banker realty chain's Baltimore-Washington regional office.

In the Baltimore market, buyers are selling homes priced in the $100,000 to $150,000 in favor of properties going for $250,000 to $400,000, according to Mr. Purvis.

Until recently, the recession had caused even those determined to make a move-up purchase to show financial constraint and buy below the top end of their ability to do so, Mr. Purvis says.

Now, many among the same class of buyers -- sensing the opportunity that comes with what he calls "soft prices" on upscale properties -- are more willing to push themselves into higher mortgage levels to execute a dream-home purchase, in Mr. Purvis' view.

"Knowing they can get better buys, people are willing to go to a higher percentage of their range," he says.

Moderation in price

A moderation in the price of upper-end homes has been a major factor encouraging those who are venturing into the market to purchase a move-up property, in the opinion of Nancy Hubble, president-elect of the Greater Baltimore Board of Realtors.

"I see people spending more money for housing, because they can buy more house for the same payment," says Ms. Hubble, a partner with W.H.C. Wilson, a residential real estate firm in Roland Park.

The willingness of trade-up buyers to push themselves to a higher level in the housing range, even if that means taking on a larger-than-necessary mortgage, has "really impacted heavily in the last two to three months," says Rick DelSontro, marketing director for Century 21's mid-Atlantic region.

"The attitude is that this may be a once-in-a-lifetime opportunity for people. They're saying that if we don't jump right now, we may not have this opportunity again," says Mr. DelSontro, who says most local step-skippers are pursuing properties in the range over $200,000.

The housing cycle

In Baltimore, as throughout the nation, a typical household cycles its way through a total of four housing units -- a starter home, two larger properties in the trade-up category, and then, finally, a downsized home at retirement, says George Eastment, executive vice president for Long & Foster, the regional real estate firm with headquarters in Fairfax, Va.

What's happening now is that an increasing number of trade-up buyers are leapfrogging over their initial move-up property to go directly from their first to third step in the housing cycle, Mr. Eastment says.

A key factor making step-skipping feasible for an increasing number of Maryland buyers is that their incomes have gradually risen during the last three years, while at the same time high-priced homes have slumped in value, says Mr. Conte, the University of Baltimore economist.

"The income of employed individuals in Maryland has risen 10 percent in the last three years," Mr. Conte says. During the same period, "the cost of homeownership relative to income has declined 15 to 20 percent," he said.

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