Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 22, 1992 TAG: 9203230201
SECTION: HOMES PAGE: E-1 EDITION: METRO
SOURCE: The Los Angeles Times
DATELINE: LENGTH: Medium
Unemployment is up. Many other economic indicators are down. Stories about layoffs, plant closures and bankruptcies are as commonplace as rubber checks at the House of Representatives' private bank.
But lost between all those depressing newspaper headlines and TV sound bites is some great news for homeowners and would-be buyers.
We thought we would give you a break from all the recent dreary reports and share some of the best real estate news we have heard in years.
The 1.4 million homeowners who refinanced in 1991 saved a total of $3 billion in finance charges last year alone. The Mortgage Bankers Association of America says that refinancing saved the typical homeowner $173 a month, or $2,071 for the year.
The 20 million or so homeowners who saw their adjustable-rate mortgages drop last year saved even more - a combined $12 billion. The typical ARM borrower saved $193 a month, or $2,320 for the year.
Another 3 million borrowers are expected to refinance by the time 1992 is over, saving a combined $6 billion this year. And since many ARM index rates continue to drop, borrowers with variable-rate loans are expected to save another $12 billion.
If all these homeowners spend their savings, it could provide a powerful boost to the economy. If they put it in the bank, it could drive mortgage rates even lower.
If you have filled out your tax return, you have learned that you cannot deduct a penny for the interest you paid in 1991 on credit cards, auto loans and other types of "non-mortgage" debt.
But if you are like most taxpayers, you still can deduct fully interest on a home-mortgage loan as long as the loan does not exceed $1 million.
You can also borrow up to $100,000 based on the equity in your home and write off all your interest charges, regardless of how you spend the money.
While developers are complaining that banks will not lend them money to build new housing tracts, you will find no "credit crunch" if you want to buy a house.
"Lenders have plenty of money to lend to home buyers," said Mike Wilson, an economist with the United States League of Savings Institutions in Washington.
"Making a loan to 100 home buyers is a lot safer than making a loan to a developer who's building a 100-home tract because you're diversifying your risks.
"If a homeowner defaults on a loan, you've got one bad loan. But if the developer defaults, you have the equivalent of 100 bad loans."
The nation's 2,096 private-sector savings and loan institutions earned a total of $2 billion last year, compared to a $2.9 billion loss the year before. It was the industry's first annual profit since 1986, according to the federal Office of Thrift Supervision.
Last year "was a milestone" on the road toward cleaning up the S&L crisis, said OTS Director Timothy Ryan. "The industry is stabilizing and I believe we are now in the eighth inning of the cleanup process."
Interest rates on fixed, 30-year mortgages are averaging 8.88 percent, compared to 9.02 percent six months ago and 9.50 percent a year ago. Although rates have edged up a bit since January, they are still near their lowest level in nearly 20 years, according to the Federal Home Loan Mortgage Corp.
True, homes are not selling nearly as fast as they were in the red-hot market of 1988 and '89.
However, the most recent report from the National Association of Realtors showed that resale homes are selling at an annual rate of 3.22 million - a solid 13 percent increase from a year ago and yet another sign that the worst of the housing slump may be over.
The median price of a typical home in the nation now stands at $102,300, a 6.3 percent increase from a year ago. The Department of Commerce reports that inflation has been running at about a 3 percent annual rate over the past year.
So, even though buying a house is no longer a sure-fire way to get rich quick, it is a good bet that your home's value will outpace inflation. Plus, homeowners are entitled to those special tax breaks.
According to the National Association of Realtors, a family that earns the national median income of $36,742 and makes a 20 percent down payment on the median-priced home of $102,300 has 125 percent of the income needed to qualify for a conventional mortgage.
In short, getting a loan to finance the deal would be a snap.
by CNB