As interest rates slide, will higher home prices begin to sneak up on the unwary consumer?
Many owners over the past year or two have had to accept lower-than-expected prices for their houses, taking into account the buyer's burden of financing a home at interest rates of 16 or 17 percent. Prices for houses without seller financing have been falling.
Single-family house prices rose only 1.8 percent in August over the same period last year, according to the National Association of Realtors (NAR).
Too, the organization points out, after adjusting for inflation and creative financing, in which a seller often provides financing at below-market rates, house prices are actually down as much as 10 percent from a year ago.
Nevertheless, once financing is more easily available to more consumers, few experts expect housing prices to soar.
S. J. McDonald, a Weston, Mass., realtor, says he believes prices are ''definitely'' going to rise. However, he says, the size of price hikes will depend on consumer reaction to the greater availability of financing and reasonably priced homes.
Already, he reports, business is picking up in his area.
''If this tempo keeps going and increases,'' Mr. McDonald says, ''activity will increase. Then, a shrinking inventory will push prices up. In the past two to four years, we haven't been building enough houses, so there's a limited supply.''
The decline in mortgage rates is expected to make another 2 million families eligible for ownership, according to the Federal National Mortgage Association, also known as Fannie Mae.
Fannie Mae's rates for adjustable-rate mortgages, for example, which stood at 17.1 percent in August 1981, have dropped most recently (as of Oct. 13) to 13. 390 percent. Its 30-year, fixed-rate mortgage has slipped to 14 percent.
Timothy Howard, chief economist for Fannie Mae, feels that home prices will probably firm up and rise slightly as more buyers enter the market. However, he expects only a moderate pickup. This would be best for the housing industry, Mr. Howard says, as a sustained but gradual upturn would prevent a sudden rush for a limited supply of new homes.
''I think we're in a strong position to legitimately hope for that steady upturn,'' he concludes.
Not everyone agrees, however. Robert Gough of Data Resources Inc. in Lexington, Mass., says the rate declines of recent weeks are ''token,'' and are insufficient to spur a significantly larger number of housing sales.
Because of this, prices should remain stable for at least the next three to five years, he says.
At the same time, a sudden surge in demand could trigger a spurt in prices or financing costs. If mortgage rates fall below 12 percent, for example, and more people feel they had better buy now, rates could conceivably be driven up by the demand for financing. This is unlikely to happen to any great extent, according to Mr. Gough.
Is this the time to buy a house?
Some observers argue that with interest rates at their lowest level in more than two years, buyers can take advantage both of more available money and the many good deals available in the marketplace.
''We have the biggest inventory we've ever had available on the market,'' says Mr. McDonald.
''I don't think the public has quite awakened to the fact that now could be a very good time to buy.''
Others assert that interest rates are likely to decline still further. Accordingly, waiting may be a good idea - both for the buyer, who won't have such a heavy mortgage burden, and the seller, who may be able to command a higher price for his property.
Mr. Gough suggests waiting a bit longer.
''Buyers should definitely hold off making a purchase,'' he says. ''The likelihood of continued drop over the next three to four months is very significant.''
At the same time, he adds: ''Because the housing market is depressed, there are some very good deals. So if a buyer can find a home at a good price, he should buy it even at current interest rates.''
Mr. Gough adds that the cost of refinancing a house is not all that expensive.