NEW YORK (Money Magazine) — When Elisabeth and Tom Merrill decided to sell their home in Wenatchee, Wash. (pop. 107,000), they braced themselves for a long slog.
The couple and their four kids were bursting out of their 2,400-square-foot house, but they had read about the nation’s slow-as-sludge real estate market and expected the worst.
But their house sold in 10 hours for $387,000, 80% more than they paid six years ago. “I was thrilled,” says Elisabeth. “I can’t believe how fast it happened.”
While housing prices increased only 3.2% nationally in the year ended June 2007, according to the Office of Federal Housing Enterprise Oversight (OFHEO), a government regulator, prices in Wenatchee shot up 24%, partly because a recent influx of retirees boosted demand for housing.
Wenatchee is not the only hot spot bucking the national trend. Markets in the Pacific Northwest, Utah and Colorado still boast annual appreciation rates of 10%-plus, along with a scattering of bright spots in the South and even in the East and the Midwest.
How to account for these exceptions?
For the most part, the iron laws of supply and demand explain what’s going on, with the added element of wild and crazy speculation. If you understand how such factors are playing out in these red-hot markets, you’ll be better able to anticipate changes, and develop smart housing strategies, right at home.
It’s the Demand, Stupid
The basics haven’t changed. Job growth and rising incomes boost demand for, and prices of, housing.
Take Grand Junction, Colo. (pop. 140,000). The area is home to one of the country’s richest natural gas fields, and local energy companies have recruited new employees, ballooning the city’s work force by 26% since 2002 to about 63,000. The median price of a house in Grand Junction soared 65% in the past five years and 14.3% in the past year.
“Along with previous price gains, job growth is by far the most significant variable in forecasting growth,” says Robert Shiller, co-founder of a home-price research company and professor of economics at Yale.
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Comments: J.H. Heck of Vacation Finance says “we have seen increased demand in the Rocky Mountain states for second residences. Namely condo hotel and fractional units, because the consumer is looking for less expensive and time consuming alternatives to a whole ownership cottage. We set a record last month for loan requests.” He adds “second home demand has nothing to do with employment opportunities or jobs in the hot rare-air markets like Vail and Telluride.”
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