Even Easy Money Isn't Getting Housing Off The Dime

You hear the economics correspondents on TV, you read them in the paper. They all talk about how important the housing industry is to the economy. Low interest rates, they say, will jolt the industry the way hot coffee wakes a sleepy commuter rolling into work on the 8:02. So how come the economy isn't catching a buzz?

The fact is, cheaper mortgage money has helped boost housing starts and permits for future building in recent months. But this ain't the `80s. No longer do home prices have nowhere to go but up. And bankers these days sure ask a lot of nosy questions. Against such a backdrop, the rate decline looks a lot more like a nudge than a hard push.

HEAVY VOLUME. Even before their recent plunge, mortgage rates generally have been low, at least since the recession began. But since late June, they've dropped steadily, thanks to a strong bond rally, the Federal Reserve's move to cut short-term rates, and, more recently, a lower-than-expected Consumer Price Index that eased inflationary fears (charts). Now, a home buyer can lock in a 30-year conventional mortgage for an average rate of 9.29%, according to a recent survey by HSH Associates of Butler, N. J. That's the lowest since 1987, when the fixed-rate mortgage hit a 10-year low of 9.09% and sparked the biggest surge in loan volume ever. The average one-year adjustable-rate mortgage has dropped to 7.07%, the lowest since ARMs hit the market in 1981.

Even so, the lingering recession has blunted the benefits of lower mortgage rates. "Lower rates are always positive, but they aren't the sole determining factor" in the decision to buy a home, says David W. Quinn, executive vice-president of Centex Corp., the nation's largest builder of single-family homes. "There also has to be consumer confidence."

There isn't much of that going around right now. The Conference Board's index of consumer confidence, down slightly in July to 77.7 from 78 in June, has hardly changed over the past five months. "People find it hard to make a commitment," says Anne Keating, an Atlanta real estate agent who recently failed to sell a home after showing it to 50 prospects. Small wonder: With the economics forecasting unit at the University of Georgia predicting that up to 30,000 Georgians might lose their jobs this year, potential buyers in the Atlanta area are being extra cautious.

Keating's colleagues around the country share her frustration. Although existing home sales through June rose 6.5% compared with last year, new-home sales fell 4.4%. And lenders are tightening credit standards, locking out both builders and buyers ready to take advantage of the lower rates.

LURING RENTERS. Falling rates haven't been meaningless. New-housing construction has increased in each of the last four months, while applications for building permits--a barometer of future activity--have risen for six consecutive months. And residential mortgage loan applications tracked by the Mortgage Bankers Assn. increased 24% from the end of June to the first week of August.

The lower rates appeal mostly to renters by making ownership look more attractive. At U. S. Home Corp.'s Cottonwood Bend subdivision in Allen, Tex., new-home sales were up 30% in July. More than 60% of those homes went to first-time buyers. "When rates go down, our sales go up," says Dale Stotts, president of the homebuilder's Dallas/Fort Worth Div. He predicts the lower rates will help boost his company's sales 10% to 15% this year over last.

Owners of existing homes are finding it tough to shake their gloom. Typically, a homeowner uses the equity in the old home to trade up to a pricier one. But in Connecticut, for example, housing prices are depreciating by 1% a month and "will continue to do so into 1992," predicts real estate broker William Raveis.

Nor are lower rates expected to spark the usual flurry of refinancing. That's probably because they just haven't fallen far enough to be enticing. "If you can't save about two percentage points on the interest rate, there isn't much of an advantage to refinancing," says David F. Seiders, chief economist for the National Association of Home Builders.

Such savings aren't likely to become available, although many economists expect mortgage rates will likely edge down a little further before they bottom out at 9.25% or so. That can't hurt, but until there's marked improvement in consumer confidence, interest rates alone won't make the housing market look all that perky.

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