Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, November 18, 1994 TAG: 9411180085
SECTION: BUSINESS PAGE: A-19 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
Michael Carliner said he gives little weight to monthly fluctuation in housing statistics, such as Thursday's report that the pace of new construction fell 5.2 percent in October.
Carliner, staff vice president for economics and housing policy of the National Association of Home Builders, said there's likely to be long-term impact in this week's rise in interest rates that could keep more Americans from buying homes.
And the housing industry, even though it makes up only 4 percent of the economy, accounts for a quarter of its growth. It "brings the economy in and out of recession," he said, and leads the economy by two years.
Because the industry turned down at the end of last year, he said, it seems certain that the overall growth will be slower, although there still is the possibility of another recession. That will not happen in 1995, he said, but the risk of an economic downturn increases after that.
Carliner spoke Thursday at the Roanoke Regional Housing Conference, saying higher interest rates are the immediate cause of any decline in construction. Lending rates have gone from less than 6 percent to more than 9 percent.
Recent increases in short-term interest rates will have delayed impact on the cost of fixed-rate mortgages, he said, but immediate impact on adjustable-rate loans. That's significant, he said, because adjustable-rate mortgages now account for 40 to 50 percent of the mortgage market.
More expensive adjustable-rate loans will keep more people from buying homes, Carliner said.
But the longer-term impact on the housing industry, Carliner said, is the decline in formation of new households because adult children are living longer in their parents' homes. About 1 million new households were formed last year, although 1.2 million were expected.
But that indicates that more households may form in the next few years. By then, there will be more middle-aged people, so the demand will be for single-family housing rather than apartments, Carliner said.
Robert Fetzer, president of the Roanoke Regional Homebuilders Association, said that adjustable mortgages have been growing in popularity in this area.
Lenders have created new mortgage products, such as a 30-year loan with a seven-year lock on rates. The rates on adjustable mortgages are attractive, he said, allowing more people to get into houses. And since the average loan is in effect five to seven years due to home sales and family moves, many borrowers avoid those rate adjustments.
The jump from 7 to 9 percent in loan rates, Fetzer said, "takes out the marginal buyer" and discourages people from trading up. That increase, he said, makes a difference of $139 in the average monthly mortgage payment.
Stacey H. Davis, vice president for housing impact in the Southeastern regional office of the Federal National Mortgage Association, told the local conference that her agency has committed $1 trillion toward promotion of affordable housing by the end of the decade. That includes programs for renters, minorities and low- to moderate-income families.
Fannie Mae will spend a large amount of money on education and outreach, Davis said, because a lot of people don't understand how to buy a house - "a very intimidating process." The agency also will educate lenders in eliminating discrimination.
Davis said the agency, which buys mortgages for sale on the secondary market to investors, has developed a program for a down payment of 3 percent of the purchase price. Traditionally lenders have required borrowers to put at least 5 to 10 percent down.
Davis denied that such a small down payment might get buyers in financial trouble. Down payments, she said, are the main barrier to people trying to buy a home.
About 150 builders, lenders and government officials attended the conference, which was sponsored by the Roanoke Regional Housing Network.
by CNB