Rising interest rates, particularly construction loans pegged to 2 percentage points above prime at 11 3/4 percent, are expected to sap some of the vitality from all construction projects this year.
Yet there is optimism among both builders and developers because the supply of funds available for major projects is expected to be ample. Insurance companies and their pension funds are likely to take up much of the slack from the thrift institutions, whose deposits are being threatened by disintermediation and slackening of new savings.
For sales of new and existing housing, the supply of long-term loans is expected to continue strong. But those rates now are 10 1/2 percent for resale buyers in the District and Northern Virginia. As a result, more buyers are being qualified for FHA and VA loans, whose ceiling of 9 1/2 percent is not expected to move higher as long as the Carter administration tabs inflation as the No. 1 enemy.
But sellers whose buyers used FHA or VA financing now are paying 5 discount points (or more) to get those lower rate loans for buyers. (Discount points are paid in advance to compensate lenders for lower rates.)
But the Maryland mortgage market, particularly near Washington, has become glove-tight for buyers of resale houses. Several brokers insist they are "finding loans" and not losing sales. But they are also arranging loan assumptions, going more and more to FHA and VA loans and crossing their fingers that the Maryland legislature soon will lift the usury ceiling above 10 percent. More than a dozen other states face similar usury problems.
New home builders and developers in the volume business have been arranging for advance financing and most now appear confident that they will have enough loans for new home buyers available through spring. Also, they reluctantly admit that sales are likely to be 15 percent below the high 1978 level during the next few months.
Speaking from the platform of the Mortgage Bankers Association, of which he is executive vice president, economist Mark J. Riedy said recently that there are no signs yet that supplies of mortgage funds, nationally and locally, will dry up this year. He also predicted that long-term rates will peak in early spring at slightly above 10 1/2 percent and then fall back a bit.
On margins of profit, homebuilders are normally less than voluble. But most shoot for net profits of 10 to 20 percent, depending on volume and risk. Now they recognize that it will be difficult, if not somewhat risky, to raise prices for awhile.
Most builders took advantage of the sensational 1978 selling market to catch up, marking up products from 10 to 20 percent in stages last year, to keep pace with rising costs of materials. Lumber, drywall and masonry work rose markedly last year. And labor shortages often caused costly delays in finishing -- in addition to inconveniencing buyers awaiting possession.
"If nothng else," said one builder, "an early 1979 lessening of buyer demand should enable many of us to catch up on delivery schedules and even to hold down costs by not having to try to outbid one another to get skilled crews to finish our houses." If the market heats up this spring, there could be some cautious price increases unless inflation is stemmed.
For commercial loans on new and resold large buildings, from hotels to offices, area mortgage broker Robert Beer sees rates moving up and terms being lengthened. Office building and shopping center mortgage rates now are at least 9 3/4 percent and 10 1/2 percent or slightly more for hotels.