Leaders Fear Potential Buyers May Be Squeezed out of Market

By Yoshihashi, Pauline | THE JOURNAL RECORD, May 29, 1987 | Go to article overview

Leaders Fear Potential Buyers May Be Squeezed out of Market


Yoshihashi, Pauline, THE JOURNAL RECORD


LOS ANGELES - The recent spurt in mortgage rates has thrown a damper on the overall demand for home loans in the past few weeks, leading industry officials to worry that many potential buyers will be squeezed out of the market if rates continue to rise.

Since the beginning of April, which is considered the opening of the homebuying season, interest on fixed-rate loans has risen by 1 1/2 to 2 percentage points. This has sharply decreased the demand for refinancing, which boomed as rates fell last year, and also has made consumers more willing to accept adjustable-rate or shorter-term fixed-rate loans.

A weekly survey by The Bank Rate Monitor, a newsletter that tracks the rates banks pay to depositors and charge borrowers, showed that the average rate on a 30-year fixed-rate loan was 10.82 percent on May 20, a jump of 155 basis points from 9.27 percent on April 1. The average interest rate for a one-year adjustable-rate loan with a 30-year term rose to 7.9 percent on May 20, from 7.48 percent on April 1.

Around the country, lenders reported that applications slowed as much as 20 percent in May after a brisk first quarter. While the rate increases and the corresponding drop in demand are significant, industry executives said, the downturn did not automatically represent the start of a long-term slump.

``What we're seeing is not necessarily a decline in the absolute number of home sales,'' said John A. Tuccillo, chief economist and a vice president of the National Association of Realtors. ``The high interest rates are taking the edge off of what should have been a spectacular spring buying season. It's flattening out.''

In December 1986, Tuccillo added, nationwide home sales reached an annualized rate of 4.1 million, one of the highest rates ever. For March 1987, the rate was 3.68 million, down 11.4 percent from December but up 13 percent from 3.25 million in March 1986.

The most noticeable change caused by the ascending rates has been the dramatic decline in refinancing. …

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