As rates rise, so does pressure on fence-sitters

April 10, 1994|By Ellen James Martin | Ellen James Martin,Sun Staff Writer

Andrea Brown was commuting to work last week, listening to the news on the car radio, when she got a sick feeling in her stomach. Mortgage rates were rising, and her family's dream home was fading away.

"I was sad. I thought, 'Uh-oh, our time is running out for the house," said Ms. Brown, a 27-year-old state government clerk in Baltimore.

For five years, Ms. Brown and her husband, Tyrone, who works for a printing company in Columbia, have sacrificed and saved for a single-family home of their own in Baltimore County. They cut out movies and resolved to go to restaurants only if they brought coupons. By last week, when mortgage rates jumped above 8 percent for the first time in 15 months, they had $8,000 ready for a down payment on a house.

For six months, they've been seeking a new house with a fireplace and a large back yard where their small son could play on a swing set and splash in a kiddie pool. Now the dream is fading a bit, Ms. Brown said. Higher rates make it likely that the couple, now renting the top half of a Catonsville duplex, will have to give up the fireplace, buy an older home and choose a townhouse.

"By mortgage rates increasing, that's going to put us in another bracket. What we could afford before, we won't be able to get anymore," Ms. Brown said.

The sudden, steep rise in mortgage rates has put many Baltimore-area homebuyers on an emotional roller coaster as their buying power changes day to day. Low- and middle-income buyers are especially affected, but the prospects for all buyers -- have been hurt, real estate agents say.

Last week, the average rate in the Baltimore area rose to 8.59 percent, almost a half-point higher than in the previous week, according to HSH Associates of Butler, N.J. Rates haven't been so high since the summer of 1992.

"The buyers are upset as hell. Higher rates hurt a lot of them by cutting into their buying power," said Lynn Sherrock, who sells homes through RE/MAX Advantage Inc. in Columbia.

Ms. Sherrock said few buyers are dropping out of the market because of higher rates and many have intensified their searches, fearful that rates will go even higher.

"They're not crying. But some buyers are a little sorry they didn't buy a couple, three or six months ago when rates were down more," said Mary Thompson, an agent with Long & Foster in Annapolis.

"Obviously, we're not real pleased with what's happened," said Eric Schlesinger, 38, a general surgeon who will be moving from Sherman Oaks, Calif., to Stevenson, a Baltimore suburb, this spring.

Because of the higher rates, Dr. Schlesinger and his wife, Joanne, an attorney, have altered their plans to finance the $575,000 stone and wood-sided contemporary home they

are having custom-built in Stevenson.

Instead of the steady 30-year fixed-rate mortgage they had wanted, they are taking a hybrid loan that guarantees a fixed rate of 6.75 percent for the first five years and then shifts to a less-predictable adjustable-rate mortgage.

"The way things have exploded in the stock and bond markets these last few days, it's all we can do to try to maintain our balance and ride out the storm," Dr. Schlesinger said.

He said he is "annoyed" by the actions of the Federal Reserve Board, which has sought to push interest rates higher to check inflation.

"I just don't see that much strength in the economy. It reminds me of how Mark Twain said there are three types of liars: liars, damn liars and statisticians," Dr. Schlesinger said.

Also unhappy is David Greenberg, a 23-year-old accountant who works at Ernst & Young in downtown Baltimore and aspires to buy a renovated rowhouse in the Federal Hill section of the city.

"I've been close to buying a couple of times. And each time I go back and get qualified for a mortgage, the less I can afford," he said.

When he started looking in December, lower home loan rates would have let him purchase a $110,000 house with three bedrooms and two baths in the immediate vicinity of the Inner Harbor.

Now he thinks the most he could afford is about $100,000, which would get him a two-bedroom, one-bath rowhouse farther from the harbor.

Unlike some would-be buyers, who have jumped into the market fearful of higher rates, Mr. Greenberg is slowing his search, hoping rates fall.

"My unofficial opinionated opinion is that rates are going to come back down in the summer when the government realizes there's no inflation in the economy," he said.

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