Home Market Unfazed, for Now, by Rise in Loan Rates

By DIANE WEDNER and JENNIFER OLDHAM

Jan. 30, 2000 12 AM PT

TIMES STAFF WRITERS

A steady rise in mortgage interest rates over the last six weeks to their highest level since April 1997 is creating barely a ripple in the Southland housing market, Realtors and lenders say.

The average rate for a 30-year fixed-rate mortgage with no points in Southern California was about 8% in mid-December, and climbed to 8.36% last week, according to Earl Peattie, president of Mortgage News Co.

Minimizing the impact of the rate hikes are a strong housing market, record consumer confidence, the state’s brisk economy and low unemployment, experts said.

“The interest rate rise has had a minor dampening effect on the market,” said Bob Sheets, owner of Golden West Mortgage in Encino. “But those with money are still buying. There’s a good confidence level.”

But because January and February are typically slow months for real estate, a more complete picture will emerge this spring when the market heats up.

Mortgage lenders and Realtors said borrowers are aware of rising interest rates and have become more sophisticated about their mortgage options.

Home buyers have begun to veer away from 30-year fixed-rate mortgages in the last three weeks, choosing instead from an array of products that offer lower fixed rates during the first three to five years of repayment, followed by a switch to an adjustable rate.

Other buyers can’t qualify now for a 30-year mortgage,” said Garry Rankin, regional vice president of Countrywide, one of the nation’s largest lenders. “The rise in interest rates has prompted buyers to go to the adjustable rate mortgage market, which can save them a full point.”

Adjustable rate mortgages, or ARMs, peaked in Southern California in 1994 and are again on the rise, although they are still within the normal range at about 30% of all mortgages, said John Karevoll, an analyst with Acxiom/DataQuick Information Systems in La Jolla.

Joe DiTore, an agent at Re/Max Real Estate Specialists in Long Beach, said that he has seen a 10% to 20% increase in ARMs among his clients in recent weeks.

Rising rates are most likely to impact first-time buyers, particularly in Riverside County and the Westside of Los Angeles, experts said.

“First-time buyers are usually counting their pennies and trying to qualify not only on income, but in gathering a down payment and monthly payments,” said Mike Teer, a broker at Teer One Properties in Riverside. “The more interest rates move up . . . the more it hurts.”

Families buying new homes often are in escrow for several weeks, sometimes longer, so steadily rising rates can hurt those who have not locked in a rate with their lender, said Mark Armendariz, an agent with Re/Max-College Park in Long Beach.

He recently assisted an upset buyer who had to pay $2,700 in points to “buy down” her interest rate because she waited too long to lock in her loan at the lower rate.

Stephan Nourmand, president of Nourmand & Associates in Beverly Hills, said when first-time buyers are squeezed out of the market, a chain reaction occurs. If first-timers don’t buy homes of move-up buyers, home sales overall could slow down.

Most Realtors said buyers have not backed out of sales because of the jump in interest rates. But Tony Truisi, previews director at Coldwell Banker in Encino, reported some of his move-up clients in the higher end of the market have had second thoughts.

One client is contemplating taking his $820,000 house off the market after he determined a jump in interest rates would increase mortgage payments on the $1.1-million house he planned to buy by $10,000 a year.

“I have people selling homes and trying to move up,” Truisi said. “But they won’t be able to do that in this market if the rates continue to climb.”

Rising interest rates have also had an impact on refinancing, which fell 61% in the fourth quarter of 1999 over the same period in 1998, said DataQuick’s Karevoll.

This decrease cannot be attributed solely to rate hikes, however, because the refinancing market is volatile and typically experiences huge swings, he said. In addition, many homeowners who could refinance have already done so, shrinking the applicant pool, experts said.

But interest rate hikes don’t always bring bad news for the real estate market.

These gains can often spur those who are on the fence to buy a home, said Pat A. Zicarelli, a broker at Style Realty and Investments Co. in Tarzana.

Riverside agent Teer agreed. “Those who have been procrastinating are saying, ‘Whoa! Maybe I better get going,’ ” he said. “If it’s 8% today, tomorrow it may be 8.5% and next week 9%.”

And even though rates are expected to climb even higher this spring, they are still much lower than rates of a decade ago.

“It’s always interesting to look back over time at people’s perceptions of what rates are high,” said Tom McKnight, Bank of America’s regional sales manager for Southern California. “If you look back over 10 years, interest rates are very good now.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

30-Year Fixed Rates

Southern California average interest rates on 30-year fixed conforming loans with zero points.

7/29/99: 7.98%

8/05/99: 8.15%

8/12/99: 8.29%

8/19/99: 8.02%

8/26/99: 7.85%

9/02/99: 8.20%

9/09/99: 8.03%

9/16/99: 7.90%

9/23/99: 7.88%