Marginal decreases in mortgage interest rates may be in the cards for urban areas around the country where the demand for housing is slack, but no interest rate drops are likely in Washington or Baltimore.
National projections by economists at the U.S. League of Savings Associations in Chicago and predictions by major S&Ls here are in agreement; local home buyers and sellers should expect rates of more than 11 percent for the next three months. By mid-fall interest rates could be even higher - if the Federal Reserve continues its monetary belt-tightening, and the dollar's decline goes unabated.
One executive of a major S&L here, T. William Blumenauer Jr., president of Columbia Federal Savings and loan Association, foresees the possibility of 12 percent mortgage rates locally before year-end if the national economy remains on its present course. The combination of double-digit inflation, relatively high demand for housing S&Ls "could push us to that sort of rate, however, much we'd like to see declines," Bluenauer said.
Washington's mortgage money this summer is among the costliest in the country, exceeded only by California's 11 1/2 percent prime rate for 25-year loans. Rates here are hovering at 11 1/4, and are inching higher at a few S&Ls.
The largest-volumen mortgage lender in the area, Perpetual Federal Savings and Loan Association, quotes an effective rate of 11 3/8 percent for loans of up to $75,000 on properties in the city, with 20 percent down. On properties in Virginia, where demand is less intense than in the District, Perpetual's rate is 11 percent - 10 3/4 plus 2 "points." (A point is equal to 1 percent of the mortgage loan amount, and is collected in cash at or before the settlement .) Perpetual's loans for up to $75,000 on properties in Maryland are going for 11 1/8.
Nationally, according to data compiled this week by the U.S. League of Savings Associations, prime rates range from 10 1/4 percent in some rural New England markets to 10 1/2 percent in a group of midwestern and western "soft spots." Rates then escalate to 11 percent and more in high-demand areas such as California and the Washington area.
Soon to join Washington and Los Angeles near the top of the list will be Dallas and Houston, where the usury limit on home loans is set to rise to 12 percent in September. Economists there expect effective rates to be around 11 1/2 percent once lending gets underway again.
The soft housing markets in a few major cities have cut rates during the past month, according to S&L association economist dennis Jacobe. A glut of over-priced condominiums and suburban houses in metropolitan Chicago this spring, for example, has helped reduce mortgage rates there to 10 3/8 to 10 1/2 percent. The same weak demand is affecting rates in Salt Lake City, Milwaukee, Cleveland and Portland, Ore.
Lending activity this year nationwide, however, is only down 10 percent in dollar terms from 1978's record levels - reflecting an extraordinarily strong consumer demand for housing for this stage of the business cycle. Buyers are putting their money into housing at unprecedented rates, but they are not putting much money into savings accounts at the thrift institutions that provide the bulk of the nation's mortgages.
Net savings inflows at S&Ls this year are off 25 percent from the year before; savings inflows in this area are anemic at best. Bruce Bryan, head of the Metropolitan Washington Savings and Loan League, says he wouldn't be surprised to see a net outflow of funds here this month.
As a result, local lenders are strapped for funds, and must turn to outside investors - the so-called secondary mortgage market - for the dollars they commit to home buyers. Public and private secondary market investors charge a premium for their money, and that gets tacked on to the rates and points local consumers pay when they apply for a mortgage.