As the summer wanes, the nation's housing market appears to be poised for recovery from the torpid selling atmosphere -- generated by high mortgage rates -- that froze out prospective buyers in the spring.
But the appearance may be deceptive.
The upturn in sales of new and existing homes -- to buyers lured back to the market by lower mortgage rates in June and July -- may be ended almost before it begins by yet another upward surge in long-term lending rates.
Area mortgage banker Leonard Gatti described as "startling" the recent tacit acceptance of the fact that conventional mortgage rates are likely to run in the 13 percent range.
Other mortgage banking sources indicated that discount points charged to sellers on FHA-VA loans had risen to the staggering 10 percent range within recent weeks. That means a seller would have had to pay at least $5,000 to obtain a $50,000 loan for an FHA-VA purchaser, who cannot pay more than one point.
But, earlier this week, the FHA-VA rate ceiling was increased to alleviate the point problem. But the mortgage banking industry called the increased ceilings -- to 12 percent for regular FHA 203b loans and to 12 1/2 percent for FHA graduated payment loans -- "too little and too late" to be really effective.
Because each mortgage discount point paid by the seller amounts to 1/8 percent more in the mortgage rate return, the change in rates can be expected to decrease the required points (to make the federally insured or guaranteed loans current with market rates as determined by the secondary markets to which most loans are sold) by 4 and 8, at most.
Thus, it becomes increasingly evident that the reasonably attractive rates in the 11 to 12 percent range in early July are disappearing. The quoted rates for new home loans turned around quickly several weeks ago and now appear ready to nudge 14 percent again.
In this high-cost metropolitan area, where wages and salaries lead the national average, housing prices have long been on a similarly high level. Only 18 months ago, housing prices were on an inflation-primed escalator that generated almost fanatic confidence among prospective purchasers capable of coping with the required down payments and monthly cost of mortgage amortization, plus taxes and insurance.
However, buyer appetite showed signs of being sated in the summer of 1979. And a series of federally induced credit-tightening moves exacerbated the trend in the fall.
By the spring of this year, mortgage rates hit a record high and seemed to present evidence that the public demand for home ownership did not go much beyond the informal ceiling of 13 percent. Asking mortgage rates eventually were higher but mostly ignored by potential buyers.
That quick freeze of buyer enthusiasm in the first five months of 1980 discouraged home builders from raising prices. Sellers of existing houses also realized that they could no longer set a top-dollar price and expect buyers to accept it.
First-time buyers, who had enough difficulty qualifying for ownership in 1978 and 1979, had to forget their quest for a home until interest rates fell sharply and rapidly in May and June. When mortgage rates peaked, homeowners mostly decided to stay put rather than to consider selling and buying a higher-priced house just within the range they could afford.
Not surprisingly, public confidence and capacity for ownership responded rapidly to those lower rates in June and July. After peaking at a 14 percent maximum in early April, the FHA-VA interest ceiling was dropped to 11 1/2 percent in mid-May. And few or no points had to be paid by sellers.
Meanwhile, the effective rate for most mortgages made in this area ranged from 11 1/2 to 12 1/2 percent. Indeed, the fast downturn seemed almost too good to be true.
Apparently, it was only a temporary romance with unreality. Market response in terms of surging home purchases in June and July combined with a decreased supply of funds available for long-term credit to move rates upward in late July and early August.
Thus, there is reasonable expectations of still another harsh blow to area builders whose own economic confidence was severely strained through the early months of this year. Their only solace, for the most part, was that their minimal inventory of unsold dwellings. Many builders simply started no new units in the early spring and concentrated on delivering those on which prospective buyers had made deposits.
However, many builders of new houses in this area have arranged mortgage commitments at rates below 13 percent for houses to be delivered later this year. They pay a price for that assurance to their buyers and try to make up the cost in the price of the house. That lower-rate financing is still available to new home buyers.
It is recalled that the late-spring upturn in the market rekindled the confidence of builders who had cut back their starts only a few months earlier. cThey responded quickly to the downturn in rates charged for both construction and mortgage loans and decided to build for late fall delivery.
At this point in late August, the Washington area housing markets are still selectively and modestly vibrant. New town houses priced between $55,000 and $90,000 are moving well. New single houses in the range up to $150,000 are finding buyers. Resale single houses priced under $110,000 are not being ignored by qualified buyers. Some of the luxury-level houses -- both new and existing -- are also selling. Of course, buyers of houses priced over $300,000 are a special breed whose incomes seem to dictate that they get larger mortgages for tax benefits.
Over-all, whether it be a single house, a town house, or a condominium apartment, the recent market has produced sales activity in both new units and resales of existing dwellings. But the sales figures compiled by Housing Data Reports also show soft spots to balance the hot-selling sectors.
Before beginning a vacation earlier this week, Renay Regardie of HDR summarized that much of the recent new dwelling selling activity has been in the "affordable" category.
Of course, what's affordable to one person or household may not be attractive or feasible to another. Generally, however, an affordable new house is one within reach of a first-time buyer or the second-time buyer vacating a smaller, often older dwelling for a modeately larger dwelling.
On balance, it would seem that a continuation of this summer's relatively strong home selling market depends on a replenished supply of long-term financing money at a rate near or under 13 percent, more likely closer to 12. Right now, the prospects are dim.
Recently some builders have raised their prices after holding the line through the cold market. Thus, a combination of higher mortgage rates and higher home prices could conceivably cool off this area's housing market again before any pumpkins are exposed to frost.
Yet, some prospective buyers may be tiring of postponing their decision to buy and waiting for the lowest possible mortgage rate in an era when rate stability has disappeared. Some of those discretionary buyers may look to the future and see even high interst rates and regard today's offerings as a "last chance," particularly if mortgage terms are still favorable.
Meantime, some savings and loan associations are getting ready to launch a major program to market renegotiable rates mortgages (with the rate changing with the market on three-year intervals) as opposed to the fixed-rate mortgage preferred by buyers.
Thus, the recent sharp upward movement in mortgage rates could deal housing and residential real estate still another lethal blow if the rising trend persists. Mortgage specialists are almost as confused as is the public in dealing with the humpty-dumpty rate pattern of the past year.
A more stable pattern of long-term rates seems to be an elusive priority that home building, mortgage banking and residential reselling need to establish an aura of confidence for buyers and sellers, as well as for the professionals who deal in mortgage money.