Homebuyers Enjoy Dip in Mortgage Interest Rates
By Steve Brown
The Dallas Morning News Knight Ridder/Tribune Business News
Mar. 29 - Home buyers, who were warned to expect higher mortgage rates this year, are instead enjoying a dip in interest rates.The recent declines in home finance costs couldn't be better timed for the spring housing market, and homeowners who want to refinance are also taking advantage of the drop in rates.
"Certainly consumers are re-energized on the refi side, and the home purchase applications look good, too," said David Seiders, chief economist for the National Association of Home Builders. "With the interest rates lower than anticipated, it has given an even brighter outlook to the housing market."
Housing analysts had anticipated that mortgage rates would push higher in 2004 as the economy perked up.
While that may still happen later in the year, so far a weaker-than-expected national economy has kept finance costs low.
Since last fall, the cost of a 30-year fixed-rate home loan has fallen from an average of 6.05 percent to about 5.40 percent.
The decline amounts to about $50 a month off the payment on a $150,000 loan. More important, the drop allows buyers to qualify for more expensive houses.
"This is great for the housing market," said David Lereah, top economist for the National Association of Realtors. "Mortgage rates are dropping further, which makes homes more affordable.
"It certainly gives the low end of the market more play," he said, "and on the higher end allows people to trade up."
Consumers are responding – nationwide new-home sales were up 5.8 percent in February, the biggest such increase since last summer. And nationwide pre-owned home sales were up 5.7 percent last month from February 2003.
Mortgage applications for purchases have increased by about 20 percent in recent months, according to statistics from the Mortgage Bankers Association of America.
"When I've talked to the local builders, they say with rates falling, home sales have been strong through January, February and March," said David Brown, director of housing analyst Metrostudy Inc.'s North Texas office.
"It will definitely help our home sales numbers."
Most housing economists were forecasting a decline in home sales in 2004, because of rising interest costs and the recent buying boom. Now local and national analysts are rethinking their predictions.
"We were expecting things to cool off a little bit in North Texas," Mr. Brown said. "But with the rates coming down, it is continuing to fuel demand, especially at the low end."
Last year, builders in the Dallas-Fort Worth area sold a record 38,389 homes, an increase of 3 percent from 2002's record sales, according to Metrostudy.
Nationwide, builders started a record 1.5 million homes last year.
Economists had forecast a decline of between 3 percent and 5 percent in construction this year.
"I've rethought things a little bit," Mr. Seiders said. "If the rates languish lower and longer, we could be talking about a year equal to or even higher than last year.
"The question is, How long do we think the low interest rates will hold?
Part of it seems to be international turmoil that is hurting the stock market and helping the bond market," he said.
Fears about terrorism abroad and at home help the U.S. housing market, Mr. Lereah said.
"Housing is a tangible asset that households look at as a secure place to put funds," he said. "Bonds and equities are not as secure."
A great opportunity Lower mortgage rates also give many homeowners a chance to cut expenses.
The volume of home loan refinance applications has more than doubled in the last few months, according to the Mortgage Bankers Association of America.
Lenders say they are seeing a refi rush, but not at levels seen in recent mortgage rate slides.
"It's up a little bit, but nothing like we would expect," said Larry Kelley of Southwest Mortgage in Dallas. "There just hasn't been enough attention paid to the fact that rates are down."
Mr. Kelley said there is less of a sense of urgency in the home loan market. "For the most part, people don't think rates will go up for some time," he said.
Many of the consumers refinancing their homes are responding to the bad economic times, Mr. Kelley said.
"We're running into a lot of folks who got into a bind when they lost their jobs," he said. "Now they have had to take jobs paying less money and are looking for relief in their finance payments."
To get the payments even lower, most of those borrowers are choosing adjustable-rate or interest-only loans, he said.
Another reason refis may be lagging is that so many homeowners have already refinanced.
"The well runs dry after a while," said Mike Anderson of Reliance Mortgage. "But we're still doing a brisk business."
For housing to continue to boom, economists agree that the job market must be stronger. So far the number of jobs being created in the United States has lagged all predictions.
"I'd rather see a better job market and a little higher interest rates," Mr. Seiders said. "Housing numbers would be roughly the same, but the foundations of the economy would be stronger."
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