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Low Mortgage Rates Raise Optimism For Fall Housing Season Graphic

September 2, 1991

NEW YORK (AP) _ The summer home-buying season is winding up with a somewhat mixed report card, but lower interest rates are starting to lure more people into the market.

Real estate agents and lenders around the country say they have high hopes for the fall with mortgage rates sinking to 4 1/2 -year lows.

″Rates have gone down enough to allow larger segments of the population to buy,″ said Sidney Lenz, executive vice president for Countrywide of Pasadena, Calif., one of the nation’s largest mortgage bankers.

Included in that category, she says, are many first-time buyers, who might have been unable to qualify for a mortgage when rates were higher, as well as those looking for trade-ups or vacation property, who feel a bit more confident in the economy.

″It’s not a boom but it’s still a recovery,″ Thomas Holloway, senior economist for the Mortgage Bankers Association of America, said of the increase in housing activity. ″1990 was practically a free fall, hitting a trough in January of this year. So the pattern looks like a ‘V’.″

Recent data seems to confirm that view. The National Association of Realtors said sales of existing homes rose for five of the first seven months of this year, reaching a 2 1/2 -year high in June before dropping off in July. New homes sale were off during the seven months over a year ago, although most analysts expect sales would pick up in August because of falling mortgage rates.

Rates on conventional, 30-year fixed mortgages have been below 10 percent throughout the year, with the big drop starting in mid-February, after the successful completion of the Persian Gulf War and just before the busy spring- summer home-selling season.

Rates now stand at around 9.25 percent, down slightly from recent months and far below the 10.30 percent average of a year ago, according to HSH Associates, a Butler, N.J., publication that compiles mortgage market information.

The last time rates were as low was in March 1987, when they averaged 9.09 percent, HSH said.

Adjustable-rate mortgages are looking even more attractive. HSH said that in late August one-year ARM rates averaged 6.98 percent, their lowest level since this type of mortgage was introduced in 1981. Several lenders also were offering ARMs at initial rates well below 6 percent, it said.

For instance, Countrywide, the mortgage banker in Pasadena, offers an adjustable rate of 5.75 percent for the first year, with a 6 percent lifetime cap. Lenz said low rates have attracted business. On Aug. 19, for example, Countrywide received a record 663 mortgage applications worth $97.8 million, she said.

Another lender, Colonial Mortgage Co. in Montgomery, Ala., said mortgage volume this year about doubled from a year ago, although Ronnie J. Wynn, the company’s president, said activity has been off lately partly reflecting a seasonal slowdown.

Economists say mortgage rates - moving in tandem with the Treasury bond markets, where rates have declined - could drop even further later in the year as long as inflation remains in check. They say fixed rates could move down toward 9 percent, and perhaps slightly below that level.

The Federal Reserve had pushed for lower interest rates earlier in the year to help pull the nation out of recession, which began in the summer of 1990. Rates could moderate even further if the economy continues its fitful recovery.

Holloway, the MBA economist, is among those predicting a gradual recovery. He forecasts average economic growth for the decade of just 2.5 percent.

Nonetheless, Phyllis Croom, a broker with Re-Max All Stars Inc. in Colorado Springs, Colo., says she’s ″really upbeat about our market.″ The low rates, pent-up demand since the war and discounted prices following years of slumping housing sales, all add up to good business, she says.

″We’ve had a number of lean years,″ said Croom. ″There’s been a lot more interest, particuarly from people who might have normally been renters. People do react to single-digit rates.″

Competitor Gail Felder, of Prudential Realty, says there are 24 percent fewer homes listed by her firm in the Colorado Springs region from last year, a sign that things are picking up.

And across the country in Laconia, N.H., Gary Dionne, general manager of ERA Byse Realtors, said homes sales and prices are modestly higher than a year ago, with much of the increase focused on lake-front and vacation homes.

″I expect to see more activity in single-family residential sales because more first-time buyers are coming out of the woodwork now that their job outlook seems better,″ Dionne said.