Mortgage rates may reach 9% by August

BY JEFF McKINNEY The Cincinnati Enquirer

Contemplating a house purchase? You'd better move before autumn, real estate experts say, because mortgage rates could hit a five-year high of 9 percent by August.

Mortgage rates already are 1.4 percent higher than a year ago. The average rate for a 30-year, fixed-rate mortgage hit 8.45 percent last week, according to a survey of 75 lenders by the Cincinnati Area Board of Realtors.

And rates are expected to jump higher. Economists and Realtors fear the Federal Reserve will continue raising interest rates  something it has done four times since June  to slow the sizzling economy and curb threats of inflation.

Tristate mortgages have been rising steadily since April. The last time mortgage rates hit 9 percent locally was March 4, 1995, when the average 30-year, fixed-rate mortgage was 9.04 percent.

Concerns about higher rates caused Shawn and Angela Gabert of Landen to lock into an interest rate earlier than anticipated on their $380,000 mortgage for a home they are building in the River's Bend subdivision in Maineville, Warren County.

The Gaberts gambled on a three-year, adjustable-rate mortgage at 7.25 percent.

But they had faced the possibility of paying 9 percent for a 30-year, fixed-rate jumbo loan if they had waited until the fall.

Mr. Gabert, 28, a sales executive for a Cincinnati company, figures acting sooner will cut his monthly payment by $300  at least in the short term.

The way rates have been moving lately, we didn't want to wait too long, because we don't know how high they might go, he said.

The rising rates have contributed to a paradox for the record-setting Tristate housing-sales market:

 Higher rates were a key reason home sales in Greater Cincinnati fell 2.7 percent in January vs. January 1999. It marked the fourth straight monthly decline.

 On the other hand, con sumers continue to buy homes, thanks largely to a healthy economy, low unemployment and strong gains on Wall Street investments.

Despite the threat of 9-percent rates, local real estate executives remain cautiously optimistic about the 2000 selling season. They admit, however, it will be tough to beat the 26,083 homes sold last year in the region, which was the fourth consecutive record year.

We'll have another good year, but I don't necessarily know if it will be another record year, said Chip Sudbrack, president of the Cincinnati Area Board of Realtors and president of Sudbrack Inc. in Evendale.

Anthony Chan, a managing director and chief economist at Banc One Investment Advisors in Columbus, predicted the Fed's tightening will help nudge 30-year mortgages to at least 8.75 percent  and possibly as high as 9 percent  by this fall.

Ken Mayland, chief economist at KeyCorp, said he could see mortgage rates hitting 9 percent by this fall, particularly if the Fed continues to boost short-term rates incrementally

http://enquirer.com/editions/2000/02/27/fin_mortgage_rates_may.html

-- Carl Jenkins (Somewherepress@aol.com), February 27, 2000

Answers

Read the fine print in those adjustable-rate mortgages. They will raise the interest rates 3/4% every six months and you will soon be paying 9% interest anyway. The banks will probably stop giving fixed rate mortgage loans, since it looks like we may be entering a hyper-inflationary situation. Save your money and pay cash. You will soon be able to buy some re-possessed homes at much lower prices.

-- Y2kObserver (Y2kObserver@nowhere.com), February 27, 2000.

Thanks Carl, you always post such great information.

Right now the real estate market (in our area) seems to be pretty active. The average price of a starter house is around $125,000 for approximately 1400 sq foot. This seemes a little high, but maybe not compated to other parts of the country.

Remember from a couple of years when the real estate values in parts of Texas, went donwhill and on the skids. The value of a house dropped by nearly 30%.

When people purchased some of the homes in Texas and then tried to sell them, they were trapped, and could not sell them without loss, as the value (at that time) was far below the purchase and outstanding loan value.

Any guesses on what the national housing market will do in the next year?

-- suzy (suzy@nowhere.com), February 27, 2000.

I was around on the last major recession in the 70's. Believe me things were basically insane. I was making 14k per year with a house payment of 141.43/month, and the cost of heating my home was four fold. 151/mo on the budget. In 1981 I purchased a home for 53k put down 33k, with a mortgage of 20k and the rate was 18.5%. Gas was 1.51 per gallon. I agree with the cash only basis.

This is my opinion, gas will go over $2.00 per gallon in fact I can see 2.75 per gallon. Major recession cycle with prices going thru the roof on all items. Anyone involved with/in (luxury/extra) items, travel, or any leisure type activities will be hit extremely hard. There was the BS that you should charge now and pay later with dollars that were of lessor value, problem with that is that it is still money, and you can't make it fast enough in inflationary/recession cycle. So your personal debt explodes.

Watch weak companies begin to dissolve, it happened the last time around. A lot of companies went under or sold out to foreigners. Appliance inventories will pile up, recreational vehicles will pile up. It will be crunch time. Only the necessary items will be purchased.

One thing that bothers me, I see a lot of people dual incomes, husband working a part time job also trying to make ends meet, and this recession hits. It will be deep.

Another problem will be the low income people who receive substance from the government will be cut off. Only for the government to attempt to save money. (Why do you think they are attacking the churches with the IRS). They want to be able to control, only means is by attacking the wallet.

Anyway those of you who stocked piled for Y2K will be glad you did. Bobby.Knight

-- bobby knight (rknight@nb.net), February 27, 2000.

Bobby: I agree with your post. We bought out first house in the 70's and in the midst of the oil crisis. I also saw interest rates rise on home mortgages and people either could not afford to purchase a home and people could not sell their homes. As a result, home prices plummeted and people who owed more on their homes than what they were worth simply walked away from them. Price of homes in the Bay Area have doubled in and people have mortgaged their lives away. I recently posted an article here regarding consumer debt vs consumer savings and our economy is being fueled by consumer debt. No doubt the chickens will come home to roost and cash will talk. I'm back to restocking my pantry and will do it differently this time. Food prices will start to skyrocket and anyone with garden space will do well to get it ready for Spring.

-- bardou (bardou@balonneyy.xcom), February 27, 2000.

In 1979, I took a job in the executive offices of a major NE Ohio S&L. If I live a hundred more years, I will never forget the phone calls from customers who had adjustable rate mortgages (they were fairly new to the area at the time). You would pick up your phone and hear grown men crying. Sometimes, they would not leave their names (so their spouses would not find out what was going on if the bank returned their calls), they just wanted information. The fear in their voices is something burned in my cranium. I resolved that I never wanted to be that terrified in my life, if I could help it. Years later, when I married, we bought a condemned house under 40K and lived in it while we renovated it. (Try that sometime with a new baby) The house is now 3000 sq.ft., worth about 250K, and we owe less on it than most folks owe on their car leases.

FWIW, I was talking to a lady who works at a courthouse which comprises one of the more expensive NE Ohio counties. (You know which kind. The places where they put up HUGE colonials in a tract, on tiny lots. One right after the other.) In any event, she claims she has never seen as many bankrupcies as have been coming in over the last 90 days. She does not know why, and frankly neither do I. To the best of my knowledge, we've had no layoffs here and I cannot think of any businesses that have recently closed. Will keep watch...

-- Daisy Jane (deeekstrand@access1.com), February 28, 2000.

The same thing is happening over here, mortgage rates are about 7.5%, though you can get cheaper deals (discounts)

House prices have rocketed over the past 2 years by about 50% in certain parts of the country (London and the South East), people seem smug that their property is worth so much if they're not first time buyers or saddled with a very high mortgage

it all ended in tears with the last inflationary cycle in house prices with negative equity and people throwing in their keys but it seems everyone has such a short memory

-- Sir Richard (richard.dale@unum.co.uk), February 28, 2000.