Interest Rates Befuddle Buyers

Fluctuating Forecasts Put Mortgage Hunters In A Quandary

`Make A Decision'

Experts Say Costs Will Likely Stay Near 8% Into Summer

April 20, 1997|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

One day an economic forecast is released that sparks fear that inflation is accelerating, which in turn sends the stock market zooming downward.

Less than a week later, another set of government numbers are released that indicate inflation isn't as strong as we thought. Down go the fears and up goes the market.

Ah, but those in the know are still wary of the Federal Reserve Board. Will it raise rates again when it meets in May or do nothing?

What does it all mean to a consumer in the market for the best mortgage he or she can find?

Since mid-February, rates on a 30-year, fixed-rate mortgage have climbed steadily into the 8 percent range. And several analysts and mortgage brokers agree that -- barring some unforeseen economic disaster -- rates should remain at that level at least through spring and perhaps into summer.

Evidence of that came Thursday when Freddie Mac reported that its survey of 30-year, fixed-rate mortgages inched up slightly to 8.16 percent. A year ago the average was 7.95 percent.

"We're probably stuck in a new range for the remainder of the spring and into the summer," said Keith Gumbinger, an analyst for HSH Associates, a firm that tracks mortgage rates. "We will probably see 30-year, fixed-rate mortgages go lower to about 8.1 percent if we get a little plummet in the market. Conversely, if we see the inflationary threat is real, and we get a couple of reports that things are getting ugly, then maybe 8.5 percent," he added.

Gumbinger attributed the rise in rates during the last two months to fears of inflation and the Federal Reserve Board's rate increase at the end of February.

"Going back to February, the psychology has been changing. People are more resigned that rates are going to have to rise because the economy has to grow and because the threat of inflation may exist now where it didn't before," Gumbinger said.

"What the [economic] numbers are mostly saying is that the picture hasn't changed greatly over the last couple of months," he said. "The growth is real. The question is if the inflationary threat is real. It's hard to find a significant threat at this point.

"Mostly there was that jitteriness in the [stock] market because the Fed was going to move and then they did move and now the market is searching for confirmations of the move or at least something to back up that [Federal Reserve Chairman] Alan Greenspan wasn't off the mark."

But even if the Federal Reserve Board decides to raise rates again, as some analysts predict it will, Gumbinger doesn't expect fixed mortgage rates to climb near the 9 percent level.

"This year's trends aren't too different from what we had last year," he said. "It's not comforting news, but rates were fairly stable and it looks this year as if they will do the same.

"What we're finding is that it is still predominantly a fixed-rate market where it's still hard to beat at this price, and if you have problems qualifying at this level, we suggest you look at a hybrid ARM [adjustable-rate mortgage]. They are available for a half-percent or so below the 30-year fixed," he said.

Agreeing with Gumbinger is Theodore E. "Chip" Reichhart Jr., president of MNC Mortgage in Lutherville, who says buyers should remain focused on finding a home and not worry about rates.

"I think if people are looking to buy houses, they should shop for houses," he said. "The rates are going to trade in a very narrow range; it's not like the rates are going to knock them out if they want to buy."

Reichhart said his 30-year fixed rate as of Wednesday was at 8.25 percent with 1 point.

"I think the market is very good as far as interest rates are concerned," he said.

Neil Sweren of American Ideal Mortgage in Ellicott City and president of the Maryland Association of Mortgage Brokers, said the biggest mistake that buyers are making now is to hesitate.

"What people should do is make a decision," he said. "I have one person in particular who called me. He had a contract on a condominium and he was shopping rates. He asked what would happen if rates go down. I said we have a `float-down' program , so there's no risk to you [to lock in at the quoted rate]. But he waited. Now he called me back yesterday and asked me about rates. I told him what they were [higher] and he almost fell off his chair but he's still waiting for them to come back down."

Sweren, whose 30-year rates have ranged from 7 7/8 to 8 3/8 percent last week, said he believes interest rates eventually will move up, but for now they are still attractive.

"You're borrowing money in the 8 percent range and in some cases in the 7s. For some of us who've been around for a while that's pretty good," Sweren said.

But overall, "too many people wait. They're waiting to see what happens, which can be even more dangerous," he said.

Pub Date: 4/20/97

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