Inflation fears fuel mortgage rate rise

30-year home loans climb to 7.75 percent

June 12, 1999|By Robert Nusgart | Robert Nusgart,SUN STAFF

For homebuyers who have been frantically shopping to find a home but haven't checked in with their mortgage lender lately, it might be wise to make a call -- rates are on the rise.

Mortgages for a 30-year, fixed-rate loan have shot up to 7.75 percent in the Baltimore metropolitan market after having been as low as 6.5 percent last fall.

The last time fixed rates were that high in the Baltimore area was Oct. 31, 1997, according to HSH Associates, a New Jersey firm that tracks and analyzes mortgage rates.

The rise locally mirrors what is happening nationally. The average interest rate for a home loan in the United States has risen to 7.51 percent -- the highest mark since Sept. 12, 1997 -- according to the latest Freddie Mac survey.

"Gradually, over the last couple of weeks, we have been noticing it, but I haven't seen any effect on the street yet," said Marc Witman, president of the Greater Baltimore Board of Realtors and an associate broker with Long & Foster Real Estate Inc.

"I don't know that the impact has really hit most people who are looking at houses right now. So I don't know if they are aware, or are really focused on [the rates], and therefore it really hasn't interfered with the buying process," Witman said.

The combination of the lowest mortgage rates in a generation, high consumer confidence and a robust economy, has fueled a record boom in housing sales nationally as well as in the Baltimore metropolitan area. Recent fears that inflation may be taking grip of the economy have sparked the upward trend in rates.

"The pipeline is full of a lot of people who have already locked in [to their mortgage]," said Tom Champion, manager of Norwest Mortgage in Lutherville. "Certainly, the new group [of buyers] out there, they are saying, `What happened?' They're a little shocked that they are seeing these kind of rates."

According to Champion, Norwest's 30-year, fixed rate was 7 percent on April 1. Yesterday, it was 7.75 percent. On a $150,000 loan, that means a difference of $77 a month and $27,720 over the life of the loan.

For consumers, the question is whether rates will continue to rise.

Part of the answer may come next week when the latest Consumer Price Index figures are released, according to Michael Schoenveck, a senior financial analyst for Freddie Mac -- the quasi-governmental company that supplies mortgage money to lenders.

"I suspect next week that rates will be a little big higher, but that will depend on the inflation numbers," Schoenveck said.

"Right now I would say that the market is worried about inflation. They are getting wary," he added. "They know the [Federal Reserve Board] is going to meet at the end of the month, and they can't decide whether the Fed is going to raise rates or not. Because of all the uncertainty, lenders are demanding a higher interest rate, just because of that uncertainty."

Schoenveck said he doubts that there will be a "dramatic rise" in rates, and that the only thing that could slow housing sales is if rates rise above 8 percent.

Yet mortgage applications have begun to slow. According to the Mortgage Bankers Association of America, applications for the week ending June 4 were down 22.4 percent from the previous week and down 23.9 percent when compared to the corresponding period last year.

For Champion, however, it's all a matter of perspective.

"Just think about when we were at 18 percent and 21 percent, everyone forgets about that. Am I concerned? Yes. Do I think it is the end of the world? No. Any time I see interest rates in single digits, it's not a bad [interest rate] environment," he said.

Pub Date: 6/12/99

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