The turbulence that hit Wall Street last week may have...

September 06, 1998|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

The turbulence that hit Wall Street last week may have left investors with queasy stomachs, but for the homebuyer looking for a mortgage, what turned out to be bad for Dow Jones actually may have helped Mr. and Mrs. Jones.

The average 30-year fixed-rate mortgage in the Baltimore metropolitan market dropped Friday to 6.74 percent. That mark was the lowest recorded in the 15 years that HSH Associates, a New Jersey firm that tracks and analyzes mortgages, has been doing weekly surveys of local lenders. That rate eclipsed the previous low of 6.76 percent set in September 1993.

Nationally, rates for a 30-year fixed mortgage also moved to their lowest mark in almost five years at 6.82 percent, according to the weekly Freddie Mac mortgage survey.

The last time rates were this low was Oct. 22, 1993, when the 30-year rate fell to 6.74, the lowest since Freddie Mac began the survey in 1971.

Rates for a 15-year fixed mortgage hit a 30-month low at 6.51.

"It's never been this low for this long," said Freddie Mac spokeswoman Eileen Fitzpatrick, who said this was the 12th consecutive week with rates under 7 percent. The next longest stretch where 30-year fixed rates ran below 7 percent was 10 consecutive weeks in 1993.

"The stability certainly has been amazing, if not unprecedented," said HSH Associates Vice President Keith Gumbinger. "You have a stock market that goes screaming back up and then screaming back down."

The formula that has been pushing mortgage rates lower can be traced to the underlying uncertainty in the global marketplace, according to those in the mortgage industry.

Earlier in the year, economic woes in Japan and Southeast Asia sent money flowing to the safety of U.S. Treasury bonds. And since mortgage rates take their cue from the 30-year bond as well as the 10-year bond, as bond prices rose, yields dropped.

The economic crisis in Russia sent the Dow Jones industrial average plunging 512.61 points Monday, sending bonds upward and the yield falling to as low as 5.23 percent -- the lowest since the government started regular sales of the securities in 1977.

Looking for safety

"The more markets melt down, the more money runs into treasuries, and, theoretically, the mortgage pricing should go down," Gumbinger said.

"The thing that got [rates] moving down was a lot of money coming into the U.S. looking for safety because [investors] were afraid of what was going on in the foreign markets," said Robert Van Order, chief economist for Freddie Mac. "But they could change their mind and put their money back if people thought that foreign markets were undervalued. There's always a chance that the things that made them go down could be reversed. I don't think that's going to happen right now, but it is possible."

Michael Funk, research economist for the Regional Economic Studies Institute at Towson University, said troubles a world away "shouldn't have a tremendous effect" on mortgage seekers, but in terms of stock market losses and consumer confidence, "folks are just not going to feel as wealthy as they did two or three months ago.

"Sometimes it is difficult to understand the way consumers behave," Funk said. "They may feel like the time is just not right because there is just too much turmoil. Purchasing a home is one of the biggest decisions that people can make. Just the idea that there's turmoil in the financial markets may make them skittish."

But for those who are searching for the best rate, the question may be: Has the market bottomed out?

"I think it is unlikely that they will get lower," Van Order said. "There is still a little room on the downside. But I think what is more likely is around 7 [percent]."

With lenders' business being so brisk, Gumbinger said, there is little reason for further rate cuts.

"Rates don't have a lot of room to fall right now," Gumbinger said. "Lenders are not in a hurry to cut interest rates, there is absolutely no reason for them to cut rates. Business has been on a record pace there has been tremendous demand."

For Tom Champion, manager of the Lutherville branch of Norwest Mortgage: "Most people see the volatility of the marketplace and if they find an interest rate that is attractive to them -- and it's hard not to see an interest rate under 7 percent not being attractive -- they are going ahead and locking in [to that rate].

"My advice to clients is that if there is a rate that you are satisfied with, and if there is a strong possibility that it may go up -- and there is a likelihood that they may creep a bit -- it's your ability to sleep at night that is important. Unless you are very lucky, you will never time it to be the best rate."

Pub Date: 9/06/98

JTCHD: Stock slump helps rates; 30-year fixed-rate mortgages fall to 15-year low of 6.74%; Nationwide downturn; Wary investors flee to U.S. bonds; yields tied to rates decline

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