From a brief period of sunny skies, the forecast now is for increasing cloudiness and more turbulent times ahead for home buyers, sellers, and mortgage lenders.
In midsummer, it was a much happier market scene for everyone.
Then, such statements as this one from Robert Jacobson of the Home Savings and Loan Association in California, the nation's largest S&L, were common:
"Our home mortgage loan rates have dropped to 12.75 percent and we're optimistic about the future."
Today, Mr. Jacobson's tone is much more somber.
"We have just increased our prime home-loan loan rate to 14 percent and I really don't know how much farther it will escalate. As for FHA and VA loans, very few sellers can afford to pay the currently required 8 or 9 points on the loan in addition to the real-estate brokerage commission."
Every point charged by a lender represents 1 percent of the loan amount. It is normally paid by the seller.
Never before has the US seen such rapid-fire peaks and valleys in the home-mortgage-loan market. This year will go down in the record books. In April, for example, the prevailing rate was around 17 percent in most areas of the country. In early July, it was between 12 and 13 percent. At this writing, the rate hovers around 14 percent with a continuing itch to grow.
The trend is exerting a direct impact on home sales. In July, when interest rates were in the short-lived valley, sales of existing homes increased by 18 percent over the preceding month. In August, when rates started working up into the foothills, sales increased by only 4 percent.
Housing industry leaders are concerned. The president of the National Association of Home Builders (NAHB) puts it this way:
"After realizing a reasonably strong rebound in home sales and 'construction starts' in June and July, the housing recovery is now in serious doubt because of the recent upward swing in interest rates. Unless there is a decline from the sharp increases in interest rates, we could have one of the shortest housing recoveries on record."
Jack Carlson, executive vice-president of the National Association of Realtors, asserts:
"Existing home-sales activity continues to gain momentum, but that rate of growth began to slip in August as mortgage-interest rates again began to creep upward."
The NAR executive adds: "The future increase in sales activity will be gradual and steady as high mortgage interest rates put a damper on any strong upsurge such as occurred following the last two recessions. We have a long way to go to reach the robust level the industry experienced before the present recession."
The NAHB president points out how the increasing interest rates affect the consumer's ability to buy a home. On a $65,000 house with a 5 percent down payment, 4 million fewer households qualify for a loan at 12 percent than at 9 percent, he says.
"Homes financed by FHA and VA mortgage loans have been particularly hard hit by cancellations of commitments by mortgage bankers as well as cancellations of sales," reports the NAHB president. "This is the segment of the market that led the housing recovery in June and July."
Probably the most volatile state market for housing sales is California.
Existing home sales in California during the first half of 1980 fell to the lowest level since the 1974-75 recession. During that period, the number of existing home sales were 24 percent below the same period during the previous year.
When interest rates lowered to a "high valley" in early summer, sales in California picked up appreciably. But, as in other states, sales are now falling off with the slow rise in interest rates.
It is interesting to note that home prices continue to increase substantially in California, despite the tough market caused by high interest rates. The medium price of existing homes increased 13 percent during the first six months of this year.
The median price of California homes now is more than $100,000 -- an ominous record. There are almost no houses priced at $50,000 or less in the "state of sunshine and opportunity."
During the first half of 1979 more than 10 percent of all home sales brought fell into that category. Now that waning proportion is even less.
Thus, what can a young, first-time home buyer do in today's market of superhigh prices and financing costs?
Perhaps, with a little help from the family, he cay buy a $90,000 fixer-upper!
As for possible solutions to the problems of roller-coaster costs of home financing, Mr. Jacobson of the Home Savings and Loan Association of California says he feels strongly that actions must be taken to bolster consumer confidence in the economy. The lender also stresses a need for more creative and flexible home-loan instruments.
The NAHB is proposing specific legislative changes, particularly related to tax laws, to generate a consistently plentiful supply of loanable funds for home financing and to assist buyers in qualifying for a home loan.
An example of those changes is to provide tax exemptions for interest on savings deposits used by financial institutions for residential mortgages. Another is to allow for tax-exempt "housing savings accounts" to assist first-time buyers in saving for the down payment on a house.