MORTGAGE IMPACT : Home Buying Just Became More Costly; Brokers Wary

Propelled by the havoc in the nation’s financial markets, fixed-rate mortgages jumped by nearly half of a percentage point Friday, sending many worried home buyers and real estate agents in Orange County and across Southern California scurrying to lock in lower rates and salvage deals.

After a hectic day that saw some lenders raise rates twice in one morning, the most favorable rates on a 30-year, fixed mortgage were approaching 8%, up from about 7.6% the day before. The one-day surge would hike monthly payments on a new $200,000 mortgage as much as $70.

The spike in rates is also certain to raise worries about California’s residential real estate market, including what many were calling a nascent recovery in Orange County after five years of slower sales and sinking prices.

The county posted its biggest home sales increase in nearly two years last month, as the number of sales soared 31%. Prices also appeared to be stabilizing. But some local real estate experts fear those promising developments could be jeopardized by Friday’s rate jump.

“This may have some psychological effect on our fledgling real estate recovery in Orange County,” said Earl Peattie, president of Mortgage News Co., a data research firm in Santa Ana.

Real estate experts in other areas had similar concerns about higher rates.

“It means there are going to be fewer homes sold. It makes us a little more cautious,” said Bruce Norman, president of First Mortgage Corp. of Diamond Bar. “People tend to postpone the purchase of a home if they are uncertain about what is going on.”

Mortgage markets have been turbulent in recent weeks after 30-year rates dipped below 7% in early February--the lowest levels in two years--before rising in recent weeks amid indications that the national economy was getting stronger.

But the rates had started to head down again last week, and most analysts had expected them to stabilize at lower levels for the next couple of months. On Friday, however, the speed with which mortgage rates shot up was reminiscent of the rise in 1990 when Iraq invaded Kuwait.

Long-term, fixed-rate mortgages always rise and fall in tandem with long-term Treasury bonds. On Friday, the bond market suffered its worst one-day price decline in nearly six years, sending the yield of the 30-year T-bond climbing to 6.72% from 6.46%.

As the events unfolded Friday, many mortgage brokers gasped as the rate increases played out on their computer screens and fax machines.

“It just jumped like crazy,” said Steve Abo, a mortgage broker in Santa Monica. “I don’t think we are going to see the low levels of a few weeks ago for quite some time. We are in a [higher] interest rate range.”

The average rate for a 30-year mortgage with a fee of two points rose to 7.831% from 7.578% on Thursday, according to a survey of 17 major Southern California lenders by Mortgage News Co., a Santa Ana-based data research firm.

Friday’s rate increase also threatened the mortgage refinancing plans of homeowners who wanted to take advantage of the generally lower rates in recent months.

“They may have to wait, because it does not make sense now,” San Fernando Valley mortgage broker Robert Sheets said.

In the Ventura County branch of National Pacific Mortgage, mortgage banker Richard Siordia said anxious real estate brokers were calling to find out how the rising rates would affect their deals.

“For those people locked into their rate, they are pretty safe,” Siordia said. “If they are not, today is going to really hurt them.” Orange County resident Kiran Satin was one of the fortunate home buyers who had locked in on a lower previous rate--6.7%--by paying a fee. The escrow on her three-bedroom home in Irvine closed Friday.

“I feel pretty good right now,” said the 37-year-old geological project manager in Irvine. “Looks like I did the right thing.”

But many real estate agents say the jump in rates might actually work in their favor by convincing many customers to buy now.

“Some of those people are finally deciding to do something because they were waiting on the sidelines for interest rates to go down--they didn’t,” said Jeanne LaFourcade, a Remax real estate agent in Irvine.

The surprising strength of the economy could also more than offset the rising interest rates by swelling the pool of potential home buyers, said Leslie Appleton-Young, chief economist for the Los Angeles-based California Assn. of Realtors, the statewide trade group for real estate agents and brokers.

“We need job growth in California. We want income growth,” Appleton-Young said. “All those other factors are also important” to the real estate market.

Meanwhile, several California bankers predicted that Friday’s market turmoil would have little effect on the movement of money into savings deposits--unless interest rates keep rising and stock prices keep falling.

“I don’t think one day is enough to cause most people to make a change,” said Anne-Drue Anderson, treasurer of Home Savings of America, the nation’s largest savings and loan. “I think you’d need a long-term bear market” to drive investors out of stock and bond mutual funds and into the safety of government-insured deposits, she said.

Times staff writer Thomas S. Mulligan in Los Angeles contributed to this report.