Home Sales Slip as Loan Rates Climb : Housing: Realtors put on a happy face, pointing out that pace still exceeds last year’s.
Home sales in California dropped a slight 4.5% last month, the state’s realty trade group said Thursday, as rising mortgage rates continued to push many first-time buyers out of the housing market.
Real estate agents in Southern California generally put a positive spin on the news, saying the modesty of the decline indicated that the region’s housing market is still rebounding. They noted that the sales pace was still sharply higher than in May, 1993.
“If the market was in bad shape, the kind of rate jump we’ve seen over the past few months would have sent sales down at least 10%, or even more,” said Pat Neal, an Orange County real estate broker and president of the trade group. “Instead, the market seems to be absorbing most of the rate increases. That’s a very positive sign.”
But the sales decline reported Thursday was the latest in a string of bad news for mortgage bankers and most other lenders, many of whom began laying off hundreds of employees after rising rates this spring choked off a two-year refinancing boom.
With sales now falling too, some lenders say more layoffs may be in the offing.
The latest sales report by the California Assn. of Realtors said homes sold in May at a 480,500 annual rate, down 4.5% from April’s 503,390 pace. However, May sales were up 20% from a year earlier.
The trade group blamed the April-to-May decline on rising interest rates. Fixed mortgage rates stood at about 7% in February but have since shot up to 8.5%, adding about $150 to the monthly cost of a $150,000, 30-year loan.
When mortgage rates began shooting up in February, it ended a long refinancing boom that had added millions of dollars to lender’s profits over the last two years.
Southern California homeowners refinanced $2.65 billion worth of loans last month, according to the La Jolla-based research firm Dataquick Information Systems, down a staggering 72% from a peak of $9.36 billion last October and off 67% from $8.05 billion in May, 1993.
Lenders had hoped that a pickup in sales would offset much of the lower refinancing revenue, but so far that hasn’t happened. Loans to consumers who want to buy houses were up only 35% in May from a year earlier.
“Lenders who thought that their skins would be saved by higher home sales are pretty disappointed right now,” said John Karevoll, a Dataquick analyst and publisher of a monthly newsletter that tracks Southern California real estate and lending trends.
Last week, General Motors Acceptance Corp. said it would lay off about 500 of the 3,300 workers in its mortgage division. A spokesman at GMAC’s Philadelphia headquarters said the cuts would be spread among its 122 offices nationwide.
Pasadena-based lending giant Countrywide Funding has quietly laid off about 500 people over the last 30 days, raising the number of furloughed workers to about 1,100 since its mortgage business peaked in December.
Prudential Home Mortgage Co. laid off more than 50 people at its Costa Mesa processing center last month as part of a 12% reduction nationwide.
If sales don’t pick up soon, even deeper job cutbacks may be needed.
“We’re meeting on almost a weekly basis, seeing if our loan volume justifies our staffing levels,” said Bob Garman, senior vice president of Directors Mortgage Corp.
The mortgage banking giant has already laid off about 250 of the 1,100 workers at its Riverside headquarters, and Garman fears more cutbacks will be needed if rates go up again or sales continue to fall.
To keep new business coming in, many Southern California lenders have been aggressively marketing adjustable-rate mortgages. Introductory rates on ARMs are generally three percentage points lower than rates on fixed loans, which makes them particularly attractive to first-time buyers, who are most vulnerable to rising rates.
Other lenders are using more offbeat marketing gimmicks.
Under one plan offered by Irvine-based American Savings Bank, borrowers can get a no-points, no-fee loan and a $300 cash rebate when the paperwork is completed.
Under another program, American promises to make up to a full year’s worth of mortgage payments if a borrower unexpectedly gets thrown out of work.
Robert Barnum, American’s president and chief operating officer, concedes that such giveaways cut into the bank’s bottom line.
“But I’d rather make a loan with a low profit margin than not make any loan at all,” he said.
Slumping Home Loans
Most lenders in the six-county Southland area* have seen their total loan volume fall recently, as rising demand for mortgages to purchase new houses has been more than offset by a sharp drop in refinancings.
Refinancings and purchase home loans, in billions of dollars:
May, 1994:
Refinancings: $3.02
Purchase loans: $2.65
*Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties.
SOURCE: Dataquick Information Systems
