New homes: a few percentage points closer

Single-digit mortgage rates are probably gone for the foreseeable future. But after climbing to heights that squeezed millions of Americans out of the housing market, mortgage costs are starting to fall.

Earlier this week, for example, the rate on Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages dropped one full percentage point to 14 percent. And last week, California-based Gilbraltar Financial Corporation dropped its rate on conventional (nongovernment guaranteed) fixed rate mortages from 16.5 to 15.0.

Economists expect rates to edge down further over the next several weeks, providing very modest help for the hard-hit housing industry.

The declines already seem to have helped the economy a bit: The drop in mortgage rates is credited with helping hold down the housing component of the July consumer price index.

''The downtrend will not be dramatic but rates will edge down,'' says Robert Gough, an economist at Data Resources Inc.

''There is a little more (reduction) to come,'' adds Mark Riedy, executive vice-president of the Mortgage Bankers Association of America.

Both Messrs. Gough and Riedy expect conventional fixed-rate loans to be available at 14.5 percent by the end of 1982. Citibank thinks the rate on such loans could sink to 14 percent in the same time period. FHA and VA guaranteed loans typically carry an interest rate 1 percent below conventional fixed-rate loans.

Mortgage rates are falling at least partly in response to the same easing in Federal Reserve Board's monetary policy that triggered a slide in the prime rate from 16.5 percent in mid-June to 13.5 percent today. Mortgage rates have been slower to move because they ''are stickier than short-term rates,'' notes Citibank economist Glynnis Trainer.

On a less cheering note, most forecasters think mortgage costs will ease relatively little in 1983. So housing starts next year are expected to total no more than 1.3 million units, well below the 2 million starts posted in 1978.

''I think the decline in mortgage rates (in 1983) will be very slow,'' says Judith Mackey, vice-president of Townsend-Greenspan & Co., an economic consulting firm. She thinks rates on conventional loans could bottom out between 14.25 to 14.50 percent next year.

Other forecasters take an even less optimistic view.

''I'm forecasting a saucer-shaped increase'' in rates that would put conventional mortgage costs back at 16 percent in 1983, says Mortgage Bankers executive Riedy. Contrariwise, Citibank contends that conventional mortgage rates could average 12.75 percent during 1983.

There are a variety of reasons why most forecasters do not expect mortgage rates to drop dramatically in the foreseeable future. Perhaps the most important reason is that savings and loan institutions still have to pay savers relatively high interest rates for the savings used to make mortgage loans.

''Our cost of money has not changed despite the sharp drop in interest rates, '' argues Ralph Rivet, vice-president of Great Western Savings in Los Angeles. ''The rates we contracted for will have to be paid and that makes the cost of funds (we lend) drop slowly.''

Mr. Rivet says one-third of Great Western's deposits are in Treasury-bill accounts, which have a six month maturity, while another 20 percent of its deposits are tied up for 21/2 years.

And if the economy begins to recover from recession late in 1982, demand for credit will firm and rates will go up.

''At the end of the year we will see some strength in the economy and rates will start to firm up,'' says Kenneth Kerin, economics vice-president of the National Association of Realtors. ''In the beginning of 1983 we expect to see rates go back to 15 percent.''

A relatively modest drop in interest rates means that neither new construction nor home resales are likely to boom. In July, resales fell to a 1. 86 million rate, the lowest in the current housing cycle. By contrast, in 1978 existing homes sold at a 4 million-a-month clip.While lower loan rates are expected to help people trying to sell existing homes, ''mortgage rates of 14.5 percent are not enough to provide fuel for a (resale) boom,'' says Mr. Kerin.

Mortgage rates at or near that level also make the purchase of a new home out of reach for many Americans. For example, a 30-year loan for $80,000 at 14.5 percent carries a monthly payment of $979.64. ''Affordability is still a problem ,'' says DRI economist Gough.

Home mortgage rates

(effective rates on conventional mort- gages including fees and charges)

1981 14.70% 1980 12.66% 1979 10.78% 1978 9.56% 1977 9.02% 1976 9.00% 1975 9.00% 1974 8.92% 1973 7.96% 1972 7.60% 1971 7.74% 1970 8.45% Source: Economic Report of the President