Ownership housing is ending an unusually strong year in the face of forecasts that proclaim less vitality in 1979.
As a result, several questions are pervasive:
Will the sales of both new and existing houses, both of which experienced exceptionally high levels nationally in the past two years, continue as mortgage interest rates mount over the already broken 10 percent barrier?
Will potential buyers become impotent financially if downpayments go higher and monthly payments increase with interest rates?
Will builders lose confidence and ability to begin new single-family subdivisions and projects of town houses, cluster dwellings and garden and highrise condominiums? And will the torrid pace of intown rehabilitation and new construction be cooled?
One answer seems certain. Almost all sales will diminish at least slightly in the early months of 1979. But there is currently no evidence to indicate a drastic, general downturn. Certainly not a devastating halt in sales such as occurred in 1973. In-city rehabbing and new construction are expected to continue strong but some suburban sales may slacken.
Except in usury-regulated Maryland, mortgages are available. And there is expectation that the Maryland legislature will raise the 10 percent usury barrier early next year.
But are mortgage terms too high to be palatable? In the case of conventional loans at 10 1/2 percent (possibly higher) a depressing efect is possible.
Nonetheless, there are positive factors to indicate a continuing strong market in housing sales:
1. There is no evidence, to date, that the public appetite for home ownership, as both an investment and a place to dwell, has diminished. In fact, increasing numbers of young singles, many not yet 30, want to buy whatever they can afford. Also, older non-owning singles and couples continue to do likewise as the rental market becomes generally tighter and more expensive. Many buyers are willing to put more of their disposable income into monthly housing costs as evidence of a willingness to sacrifice to be owners.
2. FHA and VA financing are still available everywhere at 9 1/2 percent. (However, an upward rate adjustment is considered possible.) The 9 1/2 percent rate is below the market level forcent rate is below the market level for conventional loans. In the case of VA loans, there is virtually no ceiling on the total amount of mortgage although the VA guarantee covers only the first $25,000 of indebtedness. Graduated payment FHA loans are offered more generally and they provide easier financing in early years. For FHA loans, however, the limit is $60,000. That makes it difficult to finance an $80,000 house. Also, sellers must pay discount points to get those below-market terms for qualified buyers. That now means paying 5 to 6 points ($3,000 or $3,600) for the privilege of having those terms available on a $60,000 loan.
3. There is some likelihood that area savings and loan institutions may choose to take advantage of their newly provided privilege of amaking both variable interest and graduated payment mortgage loans. Both could provide more loan potential in conventional financing, albeit at high rates.
4. In the area of new home sales, volume builders are already providing below-market interest rates and financing terms to make their houses salable. They know that financing is the key to sales, even if financing costs are included in the price. They also know that move-up buyers must sell their present homes to make a change. So some builders have buy-in guarantee programs available at a price. Additionally, more builders are using FHA and VA financing to increase sale potential. And they also demonstrate to on-the-fence purchasers that waiting for interest rates to come down can be costly in terms of lost potential appreciation and the likelihood of higher prices later.
For instance, Pulte Homes has been expanding production at a dozen sites in this area by expanding its price range all the way from low to high and offering FHA and VA, plus its own conventional financing at rates below the current market.
Mark Rubin, a Pulte marketing executive in Maryland, said: "Terms are the name of the game. We are paying for mortgage money to keep the financing attractive. And we also help the prospective buyer to sell a present house. We plan to open more building sites in 1979 and expand our production."
Kenneth F. Murphy, who directs new home marketing for Long & Forster Real Estate Inc. which represents 50 subdivisions and projects in this area, said: "Interest rates are a fact of housing liife. We do not like high rates nor do we like inflation. But we also recognize appreciation in residental real estate and rising costs of new construction. So we try to make buyers look at the total picture."
Murphy points out that the the $80,000 price of a new home today is likely to be $88,000 next year at this time in terms of buying the same house. That's a basic 10 percent appreciation (inflation if you will) expectation, below the area annual average for the past two years. Murphy cites figures to show that buying an $80,000 house today with a 10 1/2 percent mortgage will be less expensive, in terms of monthly payments, than waiting a year and possibly getting 9 1/2 percent financing on the same house that will likely cost $88,000.
Spencer R. Stouffer, vice president of marketing for the Miller and Smith home building firm, takes a similar tack on high interest rates. He says: "Waiting for interest rates to drop 1 percent (and there's no guarantee they will) can mean a daily loss of $17.77 on an $80,000 house, assuming only an annual appreciation rate of 8 percent. Meanwhile, the higher interest rate would be costing only an additional $1.05 per day-making the net loss $16.72 a day for waiting a year for 1 percent lower rates."
John P. O'Neill, regional marketing manager for Ryan Homes, said that firm delivered 1,400 new houses in 1978 and plans to build and sell 1,695 in 1979. "Our average price is $62,094 and our firm has its own financing firm to provide terms that we think are attractive to buyers. So far, we have been able to cop with the usury ceiling in Maryland with 9.9 percent financing and by also offering FHA and VA."
As a Maryland General brokerage firm, Schick & Pepe Realtors deals in mostly resale house. "Money is tight but it's not impossible to find," insisted Elmer Schick, president. "It's not inconceivable to have to call 20 lenders to arrange a single loan but so far we have not lost any conventional sales," he added. But he's pessimistic about loans for the nearby Maryland resale market unless the usury ceiling is eased.
Speaking for Hylton Enterprises, which still is building in Dale City and other locations, executive John Walvius said that "looking traffic" declined in recent months but that "really serious buyers" are still coming out. He said some homes are available with financing under 10 percent.
All area builders are "inventory conscious," thus hoping to avoid backlogs of unsold houses such as caused some firms financial woes in 1973-74. And, although prices of new houses and existing dwellings are likely to be fairly stable in the early months of 1979, increases can be expected if the market regains vitality and mortgage rates decline late in 1979.
As a barometer of optimism within the new and resale markets, Emanuel A. Baker Jr., president of the big Town & Country Properties Inc., volunteered: "Withoug a doubt, 1978 was a boom year for real estate. Our firm had its best year ever and I am confident real estate will continue to be a hedge against inflation." CAPTION: Picture 1, Some of the Westlake Terrace town house being built in the Bethesda-Potomac area by Brisker-Campitelli Enterprises. Prices begin under $100,000. By Gerald Martineau- The Washington Post; Picture 2, Real estate broke Jayne Plank shows off whirlpool tub in master bath of high-price-range Spring Side traditional house on Balls Hill Road in McLean. William Plan, husband of the broker, and Joseph Smyth are the builders. By Margaret Thomas -- The Washington Post