When Stacy and Terry Walch decided to build their dream home just outside of Mandan, one of the few things they didn't have to worry about was a good deal on their home loan.

"It is amazing to see the difference the low interest rates make on a mortgage payment," Stacy Walch said. "At times, the building process has been stressful. Overall, though, the process has been exciting more than anything."

And they are not alone.

Fueled by historically low interest rates, more local residents are taking part in the booming local housing market.

Bismarck and Mandan home sales jumped 9.5 percent over a 12-month period ending May 31, according to figures compiled by the Bismarck-Mandan Board of Realtors.

Sales in May climbed to a record high - 142 homes sold in Bismarck and Mandan.

Long-time renters are becoming first-time buyers, and expanding retail and business has brought in new residents, said Nancy Deichert, an associate executive with the Bismarck-Mandan Board of Realtors.

"People are looking at real estate as a good investment," Deichert said.

Rising sale prices also have encouraged homeowners to upgrade - building new, larger homes just outside the cities while reaping large returns on their old home investments, she said.

Average home prices for Bismarck and Mandan rose 6.4 percent over a 12-month period ending May 31, according to Bismarck-Mandan Board of Realtors data.

But as both cities continue to stretch north, prices within city limits have remained relatively lower than homes built in bordering neighborhoods. Homes sold just outside Mandan had the area's largest average price increase - jumping 28.5 percent from 2004 to $160,000.

But unlike the housing booms of some U.S. cities, local growth has been steady enough to prevent an unsustainable housing bubble - which will often pop and send prices tumbling, said Randy Holkenson, president of Bismarck-Mandan Board of Realtors.

The two cities' 12-month sales increase stayed below the 12.5 percent national home growth, measured over a 12-month period ending March 31 by the Office of Federal Housing Enterprise Oversight.

Short homeowner turnovers, where new buyers quickly sell homes to capitalize on rising prices, also have not invaded local markets, Holkenson said.

But the high home demand has created a slight problem for Realtors struggling to offer clients a wide selection, said Jerry Janz, president-elect of Bismarck-Mandan Board of Realtors.

"There are more buyers than sellers right now," Janz said. "When something good comes on the market, it's not on very long."

In the past six months, homes in both Bismarck and Mandan averaged less than 120 days on the market, he said.

Home sales began a rapid climb when interest rates first dipped to rock-bottom lows in 2000. Enrollment for first-time home buyer programs - education courses offerred by local realty agencies - is up across the state, said Michael Anderson, director of North Dakota Housing Finance Agency's home ownership programs.

Low interest rates allow first-time buyers to more easily finance home purchases, and with less up-front costs, Anderson said.

But low rates have renewed interest in mortgage and loan programs traditionally considered risky by finance experts - interest-only loans and mortgages with low down payments, he said. Reliance on both types of financing could leave borrowers vulnerable if home prices decline or interest rates increase.

When opting for interest-only loans, Anderson said buyers should use long-term and fixed-rate mortgages that lock in current low rates.

Speculative fever surrounding the red-hot market also has caused some homeowners and first-time buyers to jump into a new home purchase, he said.

"People think the rates will go up and they will miss the opportunity, so they react and buy a home without thinking it through," he said. "You need to be ready to buy a home and be prepared for the responsibility, both emotionally and financially."

Anderson advised prospective buyers to consult with lenders, and be honest about how much they can afford on a home. First-time buyer courses also help prepare for inevitable bumps along the way to becoming a homeowner, he said.

But current low interest rates won't be around forever, Holkenson said, and prepared buyers should take advantage of the housing surge.

With each new wall and hammered nail, Stacy and Terry Walch's move-in day slowly creeps closer.

They visit their new house daily, checking on the building progress and finalizing floor plans, counter tops and paint color.

And while each new amenity carries a hefty price tag, Stacy Walch is at least free of high-priced home loans.

"You are spending a lot of money for your new house," Stacy Walch said. "Know what you want to spend, and what you are looking for in a new home. Buying a home is an investment - be organized."

(Reach reporter Maggie Stehr at 250-8261 or maggie@bismarcktribune.net.)