Rising rates spook first-time buyers, but seasoned owners seize the day MOVING UP

June 19, 1994|By Lorraine Mirabella | Lorraine Mirabella,Sun Staff Writer

As Skip and Michelle Campion made plans for a bigger family and a move from their cramped, split-foyer in Catonsville late last year, they found interest rates on their side.

With rates below 8 percent, the couple, who'd owned their first home five years, could afford to spread out in a four-bedroom Colonial in Eldersburg, with a two-car garage, a basement and enough space for their 2-year-old son and a second child.

Jeffrey L. Underwood, the buyer's broker who represented the couple, says he's started to see more clients like the Campions, owners of first homes who are ready for a larger home and canstill afford to buy even as rates have creeped up from 25-year lows.

While recent rate increases have slowed the rush of first-time buyers who entered the market last year, the increases are not expected to hurt buying power of the move-up market.

"That activity is going to be strong this year," predicted Michael Funk, assistant director of the University of Baltimore's Regional Economic Studies Program.

"The people who own a home and have weathered the recession well, those people are in great positions now. They've worked off some of their debt and increased disposable income. These people are in excellent position to buy up to larger homes. I don't think the rise [in rates] will affect what these people can do."

During the recession, real estate companies felt the loss of move-upbuyers, said John Evans, executive vice president for residential sales development at O'Conor, Piper & Flynn, Realtors. "Jobs affected them the most," he said. "It's starting to come back as people feel more comfortable about the future."

"Move-up buyers can get a very good buy on the upscale home," said Carol Whittle of Prudential Preferred Properties in Severna Park. "In order to sell, the homes have to be priced extraordinarily well. In the $200,000- to $300,000-price range, those sellers have become more reasonable because the last two years they have not had the appreciation, and sellers realize that."

Home sales in metropolitan Baltimore jumped in May by the greatest percentage in nearly a year and a half, as buyers rushed to beat rising interest rates or emerged to house hunt after a winter of harsh weather. May sales reflected contracts that had been signed in the early spring.

But the brisk pace of contracts and sales many real estate companies reported in the early spring began to slow in May. Some real estate agents attributed the drop in pending sales to recent increases in interest rates, which had fallen toSee MARKET, 12KFrom Page 1K28-year lows last summer before reaching close to 9 percent last month.

The number of sales pending, or newly under contract, fell in May, compared with May 1993, the Greater Baltimore Board of Realtors reported. That decrease should translate into fewer settlements by midsummer.

But real estate agents predict a rebound will follow.

"If rates go down or don't change, sales will rebound again," said Patrick Kane, vice president of Coldwell Banker/Grempler. "People need a chance to take a breath, step back and see if the Fed will continue [raising short-term rates.] As interest rates go back down or stay the same, and people feel they're not zooming up, we'll see things coming back and outpacing last year."

Analysts said they expect rates to remain stable or even drop slightly later in the year.

"Right now interest rates are extremely stable," said Keith Gumbinger, an analyst at HSH Associates Inc., which tracks mortgage rates. "The last Fed move put a calming effect in the market. With a slowdown in inflationary pressure, they may have reason to fall . . . from now until the end of the summer. It's good news for consumers. They're not at 28-year lows, but in quite comfortable levels."

Rates on 30-year, fixed mortgages, which had reached close to 9 percent last month, have been dropping over the last five weeks and were at 8.46 last week.

First-time homebuyers have been most affected by rate increases.

Joe DeLuca, sales manager at Long & Foster in Eldersburg, said he has seen a 20 percent drop in the number of sales to first-time homebuyers since mid-March.

"When rates dropped to 7 percent, it gave the first-time homebuyer the opportunity to buy in Carroll County," Mr. DeLuca said. "Now that we've creeped up into the mid-8s, it takes it away from some of them."

Though some will no longer be able to afford homes, others are expected to turn to alternative means of financing, such as adjustable-rate mortgages.

Higher-than-expected rates also are expected to take a toll on housing starts nationally, the National Association of Home Builders said.

The year should be the best for housing production since 1986, the association says, though it now projects 1.38 million housing starts rather than 1.43 million starts this year.

Mr. Funk predicted improved home sales this year would continue.

"I had expected a great year because of low rates, improved economic conditions and pent-up demand from '90, '91 and '92, when a lot of people intended to buy but because of personal situations or economic conditions were unable to follow through," he said.

Agents predicted consistent sales through the summer.

"The public has gained more confidence in the nation's ability economically," said Carole A. Greenwald-Ryan, president of Prudential Preferred Properties. "What we saw in May will be reflected through August, not a sales boom but consistent, solid selling of homes."

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