Housing market good despite rates

Low mortgage interest rates can lead to more home purchases and new construction.
Monday, August 16, 2004 | 12:00 a.m. CDT; updated 7:15 p.m. CDT, Friday, July 18, 2008

The Federal Reserve Board raised interest rates Tuesday by a quarter percentage point, but low mortgage rates are holding steady, and the housing market is still booming.

Last year, mortgage rates dipped below 6 percent for the first time in national history. According to Freddie Mac mortgage market surveys, the average rate on a 30-year fixed-rate mortgage in 2003 was 5.83. So far in 2004, the average rate on a 30-year fixed-rate mortgage is 5.89.

Low rates led to a rush to refinance mortgages. Bettie Johnson, Boone County recorder of deeds, recorded a record 11,631 deeds of trust, which basically serve the same purpose asa mortgage, from Jan. 1, 2003,to July 31, 2003. This year, with most refinancing complete, only 6,821 have been recorded for the same time period. Johnson said the number of deeds — legal documents that transfer a property or a title to a property — recorded during this same time frame in 2003 was 4,591. The figure jumped to 7,925 in 2004. People can now buy a larger home for the same money so they are moving up, Johnson said.

Low mortgage interest rates are also contributing to higher home purchase and new construction. Chris Sanders of Allied Mortgage Group said the number of home-purchase applications is up 4 percent from last year.

“As rates rise, people move to adjustable rates, but as they fall, people have more purchasing power,” Sanders said.

The additional purchasing power is needed, though, to compensate for high construction-material costs. Simon Oswald Associates estimated the cost for third floor construction at the Roger B. Wilson Boone County building last November to be between $2 million and $3 million. As of July 23, the estimated cost has increased by about 24 percent because of high steel and fuel prices, Boone County Assessor Tom Schauwecker said.

Despite rising material costs, construction of new single-family homes

in Boone County peaked in 2003 at 1,157.Single-family home construction also spiked in 1994 with 1,152 homes and in 1999 with 1,041 homes, Schauwecker said. Interest rates dipped during both years.

Today, mortgage rates are still close to 6 percent, but Sanders said the year-to-year loan volume, the amount loaned per year, has decreased significantly during the past year.

“In 2003, people refinanced at lower rates and more people jumped on the bandwagon,” Sanders said. “In 2004, the market is narrower because most people have already refinanced.”

Similar refinancing booms took place in 1987, 1994 and 1999, each setting a new record-low interest rate. On each occasion, the following year’s loan volume took a dive, Sanders said. In the past, the decline in money used to purchase homes from the boom year to the next totaled $333.7 billion, but this yearit could decrease by $1.4 trillion.

Mortgage groups are now fighting for the same clientele and are laying off employees hired in 2003, Sanders said.

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