Boomers Trade Up, Fuel Boom in Home Sales

After two years of contemplating buying a bigger home, the Stearnses finally moved into a large three-bedroom in Wellesley, Mass., last month. But it wasn't the right house the family of four was waiting for. It was the economy.

With interest rates in the single digits, job security improving, and housing prices holding steady, the Stearnses decided now was the time to pack their trunks. "I certainly feel more [economically] secure now than two years ago," says Mrs. Stearns.

The Stearnses aren't alone. From Boston to Phoenix, a growing number of baby boomers are trading up to larger, more expensive homes.

This group of thirty- and fortysomethings, which virtually dropped out of the market last year, is helping to spur a mini sales boom in many regions of the country. Their activity is also an indicator of many Americans' renewed faith in the economy and their own financial security.

"From what we're seeing so far this year, it looks like [the middle] part of the market is coming back," says John Pfister, vice president of market research at Chicago Title and Trust, the nation's largest issuer of title insurance policies. In his own Chicago suburb, where the houses go for $400,000, one used to sell about every eight years. This year, he says, three have already sold.

The first six months of 1996 have been banner ones for home sales in much of the country. Sales of existing homes rose 16.3 percent during the second quarter compared with the same period last year, according to the National Association of Realtors (NAR) in Washington. The mountain states, the Midwest, and the South, particularly Texas, still remain strong. Some Northeastern states and California are also starting to pick up, economists say.

In Massachusetts, sales of single-family homes jumped 40 percent in the second-quarter, the nation's highest home-sales gain, the NAR reports. Sales of resold units jumped 31 percent in California between April and June; 29 percent in Arizona; 25 percent in North Carolina; and 21 percent in Nevada and New Hampshire.

In past years, first-time home buyers escaping apartments, or the in-laws' pad, dominated the housing market. And they are still an important factor. Betty Phelps of Gully and Phelps/Better Homes and Gardens real estate agency in Baton Rouge, La., says sales and prices are up this year in her region, in part, because of the strength of first-time home buyers.

But it is baby boomers - on a quest for more square footage, good schools, nearby recreation - who are pumping sales figures. And it's their faith in the economy that's bringing them back.

*Interest rates are still low, though the national average for a 30-year fixed-rate mortgage has risen slightly since the first quarter of '96.

*Home prices have remained relatively steady compared with the soaring prices of the early '80s. The national median home price during the second quarter is $118,900, up 7 percent over last year, according to the NAR.

*Confidence in the economy is improving. Downsizing is cooling off, wages are increasing, and job creation is on the rise. Unemployment is now at a seven-year low.

It is the last point that some say that is the best indicator of home buying. "Although interest rates are an important part of the story, people look at the strength of the economy and their own job security" as key factors when deciding whether to buy a home, says Nancy McArdle, research analyst at the Joint Center for Housing Studies at Harvard University in Cambridge, Mass.

While the markets vary widely from region to region, many realtors are singing boomers' praises. In the Dallas area, where the economy is back on track, half the customers at Mike Bowman's Century 21 agency are families looking for larger homes.

In Massachusetts, where existing home sales have skyrocketed (though economists say the numbers look good because 1995 was so bad), boomers like the Stearnses get much of the credit.

With two small children and Mrs. Stearns starting to work again from home, the family was quickly outgrowing its 1,400-square-foot house in Newton. So they sold it for $255,000 and bought a 2,300-square-foot home in nearby Wellesley for $390,000.

In some areas, demand is now outstripping supply. Families in some Massachusetts communities who want to trade up to larger homes are having problems finding homes for sale, says Tony Parker, president of the real estate agency DeWolfe New England.

Many industry watchers expect a slowdown during the next six months; there are already signs of that happening. Sales of new homes nationwide fell 1.3 percent in July, the Commerce Department reports. Still, starts during the first seven months of 1996 were 12.4 percent above those of the same period last year.

But as long as interest rates hold steady - most economists agree the Federal Reserve won't feel compelled to raise rates when it meets this week - housing demand should remain strong. "If [interest] rates continue to come down," says David Lereah, chief economist at the Mortgage Bankers Association in Washington, "the market will get some renewed vigor."