Mortgage Rates Hit 3-Year Low; Sales Still Languish

Rates on fixed-rate mortgages have fallen to their lowest levels in three years, but that didn’t help Mary Lee Bergamo. The Encino real estate agent held an open house on Sunday, thinking that the combination of declining home prices and interest rates would bring buyers out of the woodwork.

Nobody came.

The scene was similar across the Southland. Although average rates on fixed-rate mortgages dropped last week to almost 9.5%--a level that spurred a buying and refinancing frenzy three years ago--now such low rates are simply not enough, area real estate businesses say.

“If interest rates were higher, things might be even worse,” said Mina Fox, a Seal Beach agent. “But the fact that rates are low now is not having a big impact.”

Indeed, Southern California home sales in November were down more than 27% from levels of a year ago, according to a survey released Tuesday by TRW Real Estate Information Services. That is the slowest sales rate in 35 months, TRW said.

And things may get worse before they get better.

Real estate agents and economists maintain that buyers--fearful for their jobs in a weakening economy--may not return to the real estate market for some time.

“The current (interest rate) drop, had it occurred in a better economic environment, would have provided a pretty good boost to the real estate market,” said Martin Regalia, chief economist at the National Council of Savings Institutions. “But right now people are worried about their jobs and about real estate prices continuing to erode. That gives the investor pause.”

The Federal Home Loan Mortgage Corp. announced Friday that average rates on 30-year fixed-rate mortgages nationwide dropped 0.26% last week to 9.56%--the lowest rate since early 1987.

Generally, such single-digit mortgage rates can spur some activity in the housing market, but not this time, according to real estate agents.

Home sales are traditionally slow during the holidays, but this year is much slower than usual--despite the fact that sellers are slashing prices on some expensive homes in $100,000 increments and lower mortgage rates are vastly improving affordability statistics.

In September, roughly 18% of Los Angeles-area households could afford the median-priced home, compared to only 13% a year ago, according to the California Assn. of Realtors. Statewide, about 20% of households could afford the median-priced home, versus 16% a year ago. With falling interest rates, affordability--measured by income, mortgage rates and housing prices--is likely to expand further.

“This is one of the first positive signs that could affect the market,” said Sandy Goodkin, executive director of KPMG Peat Marwick/Goodkin Real Estate Group in San Diego.

Nevertheless, sales are slow and agents say it is not the fault of Christmas.

“We had Christmas and New Year’s three years ago too, but houses were selling,” said Rhoda Rosen, an agent in the San Fernando Valley.

The November figures released by TRW Real Estate Information Services showed that in Los Angeles County only 8,359 houses sold last month, compared to 11,122 during the same month a year ago. Moreover, the average Los Angeles home price fell by nearly $5,000, to $225,600 from $230,529 in November, 1989.

Sales were off 19.2% in Orange County, where the average home price fell to $239,671 from $246,442 a year ago. Sales in Riverside and San Diego counties were down 37.4% and 36.6%, respectively.

The culprit, real estate people and economists agree, is today’s uncertain economic and political environment. The nation is slipping into recession just as it is flirting with an international conflict. If the Persian Gulf crisis is not solved diplomatically, it could further damage the country’s economic prospects, turning what could be a mild recession into a depression, experts maintain.

“People are worried about their jobs; they are worried about making their house payments,” economist Regalia said. “Right now, I am not anticipating that rates will get low enough to really cause a boost to housing. The real problem is psychology. People don’t have an inner sense of peace, prosperity and goodwill.”

Meanwhile, those who are in a position to buy seem to be standing on the sidelines waiting for both real estate prices and mortgage rates to hit rock bottom.

“There is no sense of urgency,” said Goodkin. Buyers “figure they can wait and they are not going to lose anything other than a few months in a new house.”

Waiting may, in fact, be wise.

Several economists believe that mortgage rates will fall further in the first few months of 1991. One indication: The Federal Reserve on Tuesday cut its key discount rate by a half percentage point, to 6.5%. Other interest rates are sure to follow. However, mortgage rates tend to lag market rates by as much as three or four months.

Brokers indicate that real estate prices are also continuing to erode.

Encino agent Bergamo said a Woodland Hills residence she is selling has already been marked down by $100,000. Yet she has found no takers for the five-bedroom home.

A home in La Canada Flintridge, a pricey Los Angeles suburb, was marked down $300,000--from $995,000 to $695,000, another agent noted. Still, no buyers.

Sandi Saeger, an agent with Lazare-Johnson & Associates, says three of the four houses she has listed have been reduced between 5% and 10%.

No one is scoffing at offers tens of thousands of dollars below even these reduced asking prices.

“There are three things that will determine market value of properties in this market--death, divorce and transfer,” Rosen said. “These are motivated sellers. When prices get low enough, the property will sell.”