Mortgage Deals Post Slower Pace
Sagging consumer confidence hurts market
CHICAGO — NOT only homebuilders are being hit by the weakness in the sale of new homes this year. So are mortgage bankers. Indeed, some of these bankers have found their business plunging since Iraq's invasion of Kuwait damaged consumer confidence.
Last month the value of loans originated by a nationwide sample of large mortgage bankers declined 30 percent compared to September 1989, says Thomas Wratten of Metmor Financial Inc., based in Overland Park, Kan. Metmor originates residential mortgage loans for the Metropolitan Life Insurance Company.
The Washington-based Mortgage Bankers Association estimates that for 1990 as a whole, new mortgages for single-family homes by all types of lenders will reach $355 billion, down 8.5 percent from 1989.
``People are borrowing only if they have to,'' says Mr. Wratten.
Even in California, which until recently had been considered impervious to the trend of softening real estate markets, mortgage bankers are feeling the pinch.
Despite net inward migration in California of more than 2,000 people per day, the number of sales and even prices are beginning to slip, says Herbert Tasker, president of All Pacific Mortgage Company in Concord, Calif.
``We are experiencing a sluggish housing market, no doubt about it,'' Mr. Tasker says.
As a result, says Tasker, homebuilders are offering enticements such as $50,000 back on the purchase of a $450,000 home. Another incentive: no payments of principal and interest until six months after closing, which costs the builder about 6 percent of the price.
Mortgage bankers from around the country had similarly gloomy stories to tell as they gathered here last week for the annual Mortgage Bankers Association convention.
``Our demand is off, I would think, 20 percent from last year,'' says Robert Warrington, a senior vice president at Old Kent Bank and Trust Company in Grand Rapids, Mich. Old Kent, with a $1.8 billion residential loan portfolio, is the largest lender in western Michigan.
Sales of new homes have been hit the hardest, he says. Typically, those units are higher-priced than existing homes. And they move best in a thriving economy, when corporate-paid relocations bring new people to an area.
Periods of slack home sales are often linked to double-digit interest rates. Rates on home loans are currently around 10.25 to 10.5 percent, Mr. Warrington says, but ``the rates are not the culprit. You can go back 90 days, and we were doing lots more business at the same rates.''
Warrington dates the decline from Labor Day. ``What had been a pretty decent year turned south in a hurry,'' he says. The retreat of buyers from the housing market was not a reaction to the invasion of Kuwait per se. Rather, he says, that event crystallized in consumers' minds the idea that a recession is imminent.
The inflation factor
Warrington predicts short-term interest rates will come down because ``I do think we're in a recession.'' But long-term interest rates, which are more relevant to home sales, will not decline, he says. That's because investors expect inflation caused by oil price increases.
``The biggest thing the consumer is beginning to feel is that he's not going to make a killing,'' says Miami-area banker Howard Stearns. ``He's thinking, `I'm buying this as a place to live, not as an investment.' That makes him more conservative,'' says Mr. Stearns, who is senior vice president of Southeast Bank.
The Texans at the convention ``are a little happier this year than last,'' Wratten observed wryly, and he was borne out by Robert LaRue of Dunkum, Carl & Schneider in Houston.
Mr. LaRue said the Houston economy has been diversifying, resulting in steady growth and appropriate investments. ``People aren't rushing out doing foolish things,'' he says, reflecting on the frenzied oil boom days.
Homes are available in Houston for half of what they would cost on the West or East coasts, LaRue says. Most Houston homes sell for $120,000 to $200,000.
Still, Stearns says housing, and real estate in general, is in for ``a very rough go for a couple of years'' because of overbuilding.
``It's going to be a long, cold winter,'' Wratten says. But he foresees pent up demand bringing a rush of home purchases later. ``The longer and colder the winter, the hotter the spring.''