Housing boom in U.S. linked to Asia crisis Mortgages below 7% can be traced to Asians buying U.S. securities

Loans may top $1.13 trillion

June 21, 1998|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

Douglas and Christine Byerly typify what's been happening in this hectic housing market of 1998.

Last year, when they put their three-bedroom, one-bathroom duplex in Baltimore on the market, there was little interest and few would-be buyers. Maybe, they thought, the timing wasn't right. Ultimately, they became uninterested and allowed the listing agreement with their real estate agent to expire and put their hopes of buying a larger home on hold.

But it didn't take them long to get swept back into the market -- a market that has seen mortgage rates head lower and the fever for buying homes surge higher.

"We didn't even have our home on the market," said Mrs. Byerly, a neonatal nurse at the University of Maryland Medical Center. "Our [former] real estate agent called us and was showing a friend houses. He asked if he could show the house."

The agent showed the house, the buyer loved it and they wrote a contract right there. "It just sort of fell into our laps," added Mrs. Byerly, who is expecting her second child in the next few weeks -- about the same time they are to settle on the sale of their city home.

Fortunately, the Byerlys quickly found a four-bedroom house in Baltimore County, and when they went to make a mortgage application Tuesday they found another pleasant surprise -- an interest rate under 7 percent.

Little did the Byerlys know that the chaos of what was happening half a world away in the Asian financial markets would lower their monthly mortgage payments. In fact, they hit the market just right, at a time when the yield on the 30-year U.S. Treasury bill -- which influences mortgage rates -- was near an all-time low.

If they had bought a home in the spring of 1997, they would have had to settle for a mortgage in the 8 percent range. Last week they locked in a rate of 6.875 percent on a 30-year loan of $179,450. The lower interest rate means they'll save $138 a month in interest or almost $50,000 over a 30-year loan at 8 percent.

For many in the mortgage industry, the turmoil in the Far East has generated some of the lowest and steadiest interest rates in memory. And it has been a boon to consumers.

"When there is fear in the [global] marketplace the money pours into the [U.S.] Treasury market and the rates get better," said Peter Georgopoulos, president of Provident Mortgage Corp. "When that subsides and people take money out of that bond market and put it elsewhere, then those rates get higher and the mortgage rates go up."

As of Friday, Freddie Mac's national weekly survey of 30-year fixed-rate mortgages saw rates drop to 6.94 percent from the previous week's 7.04 percent. It was the lowest rate since Jan. 16, when troubles in the Asian market pushed the rate down to 6.89 percent.

In the Baltimore area, the rate for a 30-year fixed-rate mortgage also dipped a 10th of a percentage point from the previous week's 6.89 percent, according to the weekly survey of 40 area lenders by HSH Associates, a New Jersey firm that tracks and analyzes mortgage rates.

"We've had over 30 weeks of having 30-year fixed-mortgage rates below 7.25 percent. That is unprecedented in the 27 years we've done the survey," said Frank Nothaft, deputy chief economist at Freddie Mac. "These are clearly the best times we've seen."

Some in the industry say it may not be too far-fetched to see rates drift into the 6.5 percent range, depending on what happens a world away.

"It's possible if we see a continuation of this [Asian instability] that we'll see 30-year fixed-mortgage rates drift lower, to 6.75 and perhaps a little less," said Nothaft. "It's more likely in the near term to see 6.5 than 7.5, and I certainly think that 6.75 is very likely as an average rate. It's possible in the next couple of weeks that you will see that become more common."

Georgopoulos of Provident shares the same belief.

"Let's say that things don't get much better or actually get worse in the Far East, and all the economies slow down and all the money runs to a flight to quality [U.S. Treasury bonds], then rates will go down some more," he said.

"So it is absolutely within reason to think that you could go down a quarter of a [percentage] point to a half a point in interest rates by the year's end, if those economies don't do well."

Nothaft noted that rates for a brief time were lower in October 1993 when a massive refinancing wave swept the country. "But what's different this time around," he said, "is that we are enjoying lower rates for an extended period of time, longer than what we experienced in 1993."

Six-month mark

Others, such as Keith Gumbinger, vice president of HSH Associates, called the relative calm in the mortgage market "creepy."

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