Area lending and real estate officials yesterdays reacted to the Federal Reserve Board's decision to raise the discount rate with both shock and shrugs -- predicting at least a temporary setback for the reviving real estate industry but differing over how long it might last.
"It's going to hurt us," said P. Webster Foster of Long & Foster Realtors. "They want a recession" and this time they may get it, Foster said.
"What they did back in October got everybody's attention at one time, but then it sort of wore off," said Foster. "It's the same sort of shock felt in October, but I think this time maybe they'll get the message across," he added.
In another major real estate development yesterday, Washington-Lee Savings & Loan Association, based in McLean, began to offer home buyers 30-year mortgage loans on which the interest rate is renegotiated every three years instead of remaining fixed.
Washington-Lee is apparently the first thrift institution in the area to offer renewable mortgages, a type of loan already popular in some Midwestern states and Canada. The Federal Home Loan Bank Board has recently proposed that all federal savings and loans be allowed to offer renegotiated mortgages.
As an incentive to the borrower, Washington-Lee will knock a quarter of a point off the interest rate for its comparable fixed rate conventional mortgages.
Thomas W. Owen Jr., president of Perpetual Savings and Loan, the area's largest thrift institution, said yesterday that he expects long-term interest rates to rise in the wake of the Fed's decision. Mortgage rates in the area on conventional loans with 20 percent down now average from 12 3/4 percent to 13 percent plus one to three points, according to Builder, Bankers & Realtors, a group of local analysts.
A point is an amount equal to one percent of the loan paid at the outset.
The increase in the discount rate "will have a negative impact," said Owen. How long that lasts depends a lot on the public's perception of the long term nature of inflation," he said. "If they believe interest will stay at rates in excess of current or new mortgage rates, they'll buy because they're still ahead of the game."
"Anything that increases monthly payments and interest rates can't have a positive effect on the market," said William Ellis, vice president of Shannon & Luchs. But Ellis added, "we've just been able to adjust time and time again and pull back up."
Like others in the real estate industry, Ellis said that the real estate market was depressed by October actions but had rebounded some by January. "It's not an easy market. It's a tougher market, but it's there," said Ellis. Yesterday's actions may not have a major impact, he said.
"Maybe we need the shock treatment again," said Milton Drewer, president of First American Bank of Virginia. "I think in October when everybody say the Fed was serious and money was going to be tight, it slowed things down. Since then, in the last month or so, people have said -- we may as well get back in there and start spending and buying because it looks like the rates aren't going to come down," he said.
"The pressure on the economy does continue to mount, and it just hurts everybody," Drewer added.