Delaware Houses Are Hot - Information for Buying and Selling Real Estate in Rehoboth Beach Delaware

If you're thinking of purchasing a home, economists and agents say now's the time

Housing prices in Delaware have risen so dramatically in the past four years that some prospective home buyers now are wondering whether prices are at risk of falling once mortgage interest rates start to rise.

Don't bet the ranch house, said economists, real estate agents and recent home buyers. Low supply and high demand are expected to push house prices up nationally by an average of 4 percent to 6 percent annually over the next 10 years, economists said. Should interest rates start to climb, as some economists predict, the rate of house price appreciation could slow from the recent 7.5 percent pace. But prices are not expected to tumble.

"If you're looking for a 25 percent drop in house prices you may be holding your breath for a very long time," said Joel Naroff, chief economist at Commerce Bank.

As a result, prospective home buyers who can afford it should take advantage of today's prices and mortgage interest rates, experts said. Since 1982, the appreciation of houses has beaten inflation, as measured by the Consumer Price Index, by 2 percentage points, according to the National Association of Realtors.

"Delaware prices are still very affordable. People should get in now before prices get out of hand," said Lawrence Yun, senior economist with the National Association of Realtors in Washington, D.C. The price of a typical house in Delaware has risen over the past three years between $29,500 and $85,276, depending on location.

Patricia A. DeFeo, a first-time home buyer who last week signed a contract on a home in the Highlands section of Wilmington, said she put off buying a house for years because of frequent travel with her job at AstraZeneca. When she began looking in late January, a few friends questioned whether the historic low interest rates had pushed prices to artificial levels.

"I wasn't worried," said DeFeo, who is associate director of regulatory affairs with AstraZeneca in Fairfax. "I think housing prices are still going to go up."

Jonathan Layton, a lawyer and first-time buyer who bought a house in Wilmington in December, said he was aware of the recent run-up in values in the city. Layton admits that if he had bought earlier, "I'd have some equity in reserve."

Indeed, many homeowners who bought in Delaware in recent years have seen rapid appreciation.

Buyers of the average single-family home in New Castle County in 2000 saw their home equity increase by more than $41,000 by 2003. Equity is the market value minus the mortgage balance. The average sale price of a single-family home increased 26 percent from $157,630 to $199,110, according to the New Castle County Board of Realtors.

Consider houses in the Fairfax neighborhood in Brandywine Hundred. That traditional starter-home community saw sale prices increase by as much as 45 percent from 2000 to 2003, with some homes selling for more than a quarter of a million dollars, according to Bert Green, a broker with Re/Max Sunvest in Wilmington.

"First-time used to be in the $90,000 to $120,000 range for a single-family house, but you can't even find anything for that price today," said Sam Elzie, real estate agent with Keller Williams Realty in Newark.

In Kent County, a typical home buyer in 2000 saw a $29,500 increase in home equity by 2003. The median price of a single-family home in the county rose 26 percent from $115,000 to $144,500.

"We've just been discovered," said J.T. Takacs, a real estate agent with Harrington ERA in Dover.

Sussex County experienced the most rapid rise in prices, reaching levels seen in the country's hottest markets. The buyer of a typical single-family house in 2000 saw an increase in value of $85,276, according to data supplied by the Sussex County Association of Realtors. The average house price in the county rose nearly 40 percent to $299,714 in 2003.

But Delaware prices still pale beside the jumps in some markets. In Orange County, Calif., for example, home equity for a typical homeowner jumped $131,000 from 2001 to 2003, Yun said. In the greater New York City area, typical homeowners saw their equity rise by $94,400.

These comparisons lead many market watchers and economists to say home prices in Delaware are still affordable.

"You can't call the Delaware housing market overpriced in relation to demand," said Steven G. Cochrane, director of regional forecasting with Economy.com in West Chester, Pa. "It's still a good time to buy, no question."

Several factors contribute to the healthy 10-year outlook.

The first involves the wave of immigrants into the United States in the 1990s, the largest influx since the late 19th century, Yun said.

Immigrants, who initially set up households in the so-called gateway cities like New York City and Washington, D.C., and states such as Texas and California will be moving into the housing market in this decade. Newcomers to the United States are typically in the country 10 years before they become home buyers, Yun said. He expects many to move from those cities to other areas, including Delaware.

Baby boomers, born between 1946 and 1964, are moving into their prime earning years and may be buying larger homes and vacation homes, economists said. They are also fueling the vacation home market, where prices have risen by 75 percent from 2000 to 2003 in the Lewes, Rehoboth Beach and Dewey Beach communities closest to the ocean.

Another emerging trend for Delaware is the influx of people who are looking for more affordable housing along the Northeast corridor from Boston to Washington. Prices near New York City, Baltimore and Washington have risen so much in recent years that people are fanning out into Delaware, Yun said.

Lower housing prices and a better quality of life are what motivated April and Jess Hemmendinger to sell their house in Bloomfield, N.J., last year and buy a house in Bellefonte in Brandywine Hundred. They sold their New Jersey house for more than twice what they paid for it in 1995.

" We have very little mortgage and we have the same house. The Wilmington area is a lot cheaper and we're only 20 minutes from Philadelphia," April Hemmendinger said.

Retirees also are finding Delaware attractive because it is located near the major metropolitan areas and has lower taxes and a lower cost of living, economists said.

George and Suzanne Humphreys of Albuquerque, N.M., bought a house in Lancashire in North Wilmington last weekend because the couple want to be closer to their son who lives outside Washington and to be near Philadelphia International Airport. Two of their children live in France.

" I didn't want to pay the prices in Virginia, New Jersey and Maryland. It's cheaper here in Delaware," said George Humphreys, who retired from Trans World Airlines.

On the supply side, land-use constraints and lengthy land approval processes in the densely populated East Coast will continue to limit inventories and force buyers to bid up prices, economists said.

In New Castle County, for example, construction, as measured by building permits, dropped to 2,099 in 2002 from 2,666 in 1993, according to state and federal figures.

This has helped push housing inventories to an all-time low in New Castle County, said Richard T. Christopher, president of Patterson-Schwartz & Associates Inc.

Low inventories create a seller's market.

" Any time construction lags behind population growth it puts pressure on the price, particularly in a low interest rate environment," Yun said.

Continued concerns about over-development in Delaware and other East Coast states will almost certainly limit the supply of new housing coming onto the market, economists said.

As for mortgage interest rates, economists are predicting they should remain low through the first half of the year, but begin to tick up if the economy begins to improve.

Green of Re/Max Sunvest said he's noticed that as interest rates start to increase, house prices go up temporarily as people rush to make a move before rates rise further.

Gains in interest rates could slow sales activity and soften prices, but not by much, experts said.

" We do anticipate rates to rise by the end of the year, but nothing alarming. So, instead of 7.5 percent appreciation that was seen in 2003, we could see 5 percent appreciation in 2004," Yun said.

Reach Maureen Milford at 324-2881 or mmilford@delawareonline.com.

Of the 7,290 homes that sold in New Castle County last year, 6,162 were on the market for 60 days or less. Of those, nearly 5,000 sold within 30 days.

Single-family houses in New Castle County last year sold for 98 percent of the list price.

Single-family houses in Sussex County sold for 97 percent of the list price.

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