Your Mortgage : Amid Gloom, Good News on Real Estate Front
Every time you pick up a newspaper or turn on the television, it seems as if there’s a half-dozen stories about how the nation is struggling to escape from the hammerlock of a stubborn recession.
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’d give you a break from all the recent dreary reports and share some of the best real estate news we’ve 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 Assn. 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 already filled out your tax return, you’ve learned that you can’t 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’re like most taxpayers, you can still fully deduct interest on a home-mortgage loan as long as the loan doesn’t 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 won’t lend them money to build new housing tracts, you’ll 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%, compared to 9.02% six months ago and 9.50% a year ago. Although rates have edged up a bit since January, they’re still near their lowest level in nearly 20 years, according to the Federal Home Loan Mortgage Corp.
* True, homes aren’t selling nearly as fast as they were in the red-hot market of 1988 and ’89.
However, the most recent report from the National Assn. of Realtors showed that resale homes are selling at an annual rate of 3.22 million--a solid 13% 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% increase from a year ago. The Commerce Department reports that inflation has been running at about a 3% annual rate over the past year.
So, even though buying a house is no longer a sure-fire way to get rich quick, it’s a good bet that your home’s value will outpace inflation. Plus, homeowners are entitled to those special tax breaks.
The California Assn. of Realtors reports that sales in the state are 11.4% ahead of last year’s level. Prices are up 3.1%--slightly higher than the overall rate of inflation.
* Lower interest rates have also made homes in California more affordable, CAR says. About 30% of all families that rent in Los Angeles County and across the state could qualify to buy the median-priced home of $195,420, compared to 25% a year ago.
Although a five-point rise might not seem like much of an improvement, CAR says it means that an additional 77,000 households in Los Angeles County and another 153,000 across the state can now buy a home that they couldn’t have afforded last year.
* The affordability picture is even brighter for the rest of the nation.
According to the National Assn. of Realtors, a family that earns the national median income of $36,742 and makes a 20% down payment on the median-priced home of $102,300 has 125% of the income needed to qualify for a conventional mortgage.
In short, getting a loan to finance the deal would be a snap.
* In an announcement that surprised some analysts, the Mortgage Bankers Assn.’s latest report on loan delinquencies said that fewer homeowners are falling behind on their monthly payments.
Some realty experts had predicted that the number of buyers delinquent on their payments would rise in the fourth quarter of 1991, largely because so many people have lost their jobs and the economy has been struggling.
But the percentage of borrowers that were 30 days late actually dropped to 4.78% in the final three months of last year from 5.07% in the previous three-month span.
In other words, about 2.15 million people were 30 or more days behind on their mortgage payments in the final three months of 1991. That was about 130,000 fewer than in the previous quarter and not much higher than the average over the past several years.
“Saying that 2 million people are behind on their payments might sound a little scary, but it’s really not,” said Dick Peach, chief economist for the MBA.
“A lot of those people probably just forgot to mail a check because they were busy with the holiday season and have already brought their loan up-to-date.”
Even better, Peach said, delinquencies should fall even farther toward the end of this year as the economy slowly picks up steam and more people go back to work.
Average Rates for Residential Mortgages
Average rates for residential mortgages as of Mar. 13, 1992.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 8.59% 8.95% 8.78% 6.14% 6.41% California 8.68 8.98 8.83 6.10 6.13 Connecticut 8.69 9.04 8.88 6.08 6.31 Wash. D.C. 8.41 8.78 8.61 5.85 6.30 Florida 8.53 8.87 8.71 6.28 6.43 Mass. 8.61 9.02 8.83 6.08 6.48 New Jersey 8.55 8.95 8.75 6.08 6.60 N.Y. Metro 8.67 9.05 8.87 6.14 6.52 New York 8.79 9.15 8.98 6.21 6.51 N.Y. Co-ops 8.94 9.23 9.14 6.62 7.26 Pa. 8.48 8.87 8.68 6.02 6.24 Texas 8.52 8.86 8.69 6.26 6.48
SOURCE: HSH Associates, Butler, N.J.
