Although long-term mortgage rates and short-term construction rates have moderated from their historic highs in recent weeks, the impact has been minimal on the depressed new-home market here.
Earlier this week the FHA-VA ceiling was reduced to 13 percent. Conventional borrowing rates also have retreated from the peak 17 percent range because of lack of demand.
But builders in both Northern Virginia and suburban Maryland said there still is no real evidence prospective buyers have returned to the market.
Builder Edward R. Carr said traffic and sales were depressed in April at a broad range of Virginia subdivisions.
"So far, the prospective buyers have not responded to lower rates," he said. "Maybe they're waiting for a further downturn -- or are just lacking in confidence because of downbeat economic and international events."
Another builder said he is building 40 percent fewer houses this year.
Nevertheless, there are signs lower FHA-VA rates and the possibility of lower conventional rates will bring back buyers to new home sites, where some builders already have financing at below-market rates. These builders have arranged to pay premiums to lenders, who then make long-term financing available to buyers at rates several percentage points below the current average.
So far, several builders agreed, inventory build-up of unsold houses has been minimal because of earlier curtailed construction plans. One builder commented on a rising rate of cancellations of contracts to purchase, with prospective buyers giving up deposits of several thousands of dollars just before scheduled settlements.
"They just lose their incentive to purchase and take the loss, probably because of high market rates," one builder said.
Nevertheless, the potential demand for homeownership of new and existing houses remains potentially strong for the 1980s because of the high rate of household formations.
To stimulate sales of existing houses, many sellers are taking back mortgages themselves, arranging loan assumptions for purchasers or providing interim financing.
Merrill Lynch Relocation Management, for instance, has introduced a program to allow home buyers to make down payments on houses at current market prices but to delay closing for a year.
In the interim, the purchaser is expected to arrange permanent financing -- in a market in which long-term borrowing rates are expected to decline in coming months. The buyer pays monthly charges until the financing is obtained.
As a result of depressed housing and lumber industries, several western congressmen have called for action to provide lower mortgage rates. Sen. Warren Magnuson (D-Wash.) said "not only the homebuilding industry but the whole forest products industry has been hit by this." And Rep. James Abdnor (R-S.D. said that the Carter anti-infaltion policy is hurting "any industry that depends on long-term interest rates."
Cecil Boyer, president of the Northern Virginia Builders Association, said local unemployment in housing-related industries is already in the 30 to 50 percent range.
"The lending industry is going to have to find more creative ways for making permanent financing available and at lower interest rates, "Boyer said. "Interest rates for housing have to be lowered. Not some time in the future but right now."
Rep. Herbert Harris (R-Va.) introduced a resolution calling on the Federal Reserve Board to lower interest rates. He said; "High interest rates are not stopping inflation but are leading to unemployment and economic stagnation." Harris previously had met with Northern Virginia builders to discuss their problems.
Some relief in that direction has been predicted by Thomas Harter, chief economist of the Mortgage Bankers Association. His view is "mortgage interest rates should gradually return to the 12 to 13 percent range by year end as mortgage demand plummets and funds come back to the thrifts (lending institutions). However a return to the new "low-water mark' of 12 percent may never occur.
"Once mortgage rates become available at a 'bargain' price of 13 percent, the floodgates of pent-up demand will open. Mortgage lending will explore and mortgage interest rates and hose prices will be bid up once again," Harter said. CAPTION: Picture, NEW HOUSES -- Marshall Freedman and Alvin Meirs are building 21 houses in their Heritage Hill development in the Olney community of Tanterra where 380 contemporary houses were built in the 1970s. The new, four-bedroom houses cost $129,000 to $133,000 and have two skylights each. By Matthew Lewis -- The Washington Post