If you are interested in buying a new house, the first thing you probably ought to do is forget a lot of things you've heard.
Here are four forgettable "facts" that have attracted a lot of attention:
"Affordable" new housing has disappeared from the metropolitan area, unless you want to live in a high-rise condominium overlooking an expressway or commute from such distant places as Spotsylvania County in Virginia or St. Mary's County in Maryland.
Mortgage money has all but dried up.
Some mortgage money may be available, but it's too expensive.
Soaring mortgage interest rates (now in the 15 percent to 16 percent range) have got to fall. When they do, that will be the time to buy.
Having forgotten the forgettable here's what you should remember, starting with the affordable house (shelter you can buy with, say, an income of $26,000 to $32,000).
There are affordable houses being built and marketed as close in as Montgomery and Prince George's counties in suburban Maryland and Fairfax County in Northern Virginia. They are not as plentiful as they were in the 1960s or 1970s, but they are out there.
Ignore the often-quoted statistics on the "median price" of new housing. If you're looking for affordable housing, knowing the median price of a new town house in Fairfax or Montgomery isn't knowing very much at all.
For example, the median town house price in Fairfax is more than $95,000, or enough to scare budget-conscious shoppers all the way to Spotsylvania. The median price is the point at which half the new houses are more expensive and half are cheaper. But there's no indication of how much cheaper, and that's the kind of information you need if you're looking for the affordable house.
As it happens, you don't necessarily have to go to Spotsylvania (or St. Mary's). In the Newington Forest section of southern Fairfax (a short distance from Shirley Highway), Ryan Homes is selling town houses that are as cheap as $59,100 (with two bedrooms and an unfinished basement). There is a three-bedroom model that goes for $64,500.
In Montgomery Village, Kettler Brothers has two-bedroom town houses in its Mathan's Hill cluster starting at $56,850 and a couple of three-bedroom models in Picton cluster that are priced at $50,014.
In Prince George's Bowie, Pulte, has three-bedroom town houses in its 235-unit Collington Square development starting at $62,990. The single-family houses in the company's 300-unit Collington Green section, also in Bowie, start at $73,000 (three bedrooms).
If you can qualify, based on income and credit record, mortgage money can be found.
"There is not a wealth of money available, but it's there," says Louis W. Jennings, vice president of mortgage lending at Washington-Lee Savings and Loan Association, a major Northern Virginia lender.
"You can find mortgage money," says William C. Lawrence, vice president of Maryland Federal Savings and Loan Association, a major lender in suburban Maryland.
You will find money because most builders generally get financing commitments from lending institutions before they start construction. Because they must pay upwards of 20 percent (about 2 percentage points above the prime lending rate) for their construction money, they can't afford to be sitting on (and paying for) houses for which eligible buyers can't find mortgage money.
Even if the builder doesn't have a commitment, he will do everything but rob a bank to help the prospective purchaser find financing. He has a powerful incentive. The interest he pays monthly on a $70,000 house can amount to $1,400.
There is no cheap mortgage money, but there is money cheaper than 15 percent to 16 percent, the current rate at area financial institutions. Builders can offer cheaper rates because they have a commitment from a bank that predates the current surge in rates, their houses are eligible for lower-interest VA or FHA programs, or because they have chosen to "buy down" the rate. In any case, buyers can get a relatively bargain.
Kettler, for example, is offering a 13 7/8 percent buy-down rate (builder-subsidized) on its Mathan's Hill houses, and Ryan and other builders are offering FHA mortgages at 14 percent.
A cautionary note: Be careful that a low interest rate is not offset by a hefty number of points assessed against the purchaser. For example, if a buy-down rate on a $60,000 mortgage requires seven points, this means the buyer has to put up $4,200 (in addition to the down payment and closing costs).
If what goes up must come down, then maybe home buyers ought to wait out the run on rates. But the problem is that while one thing (interest) may go down, another thing (price of housing) continues to go up.
Take the two-bedroom house, the Pepperwood, that Ryan is offering at Newington Forest in Fairfax. In May, 1980, the basic Pepperwood was selling for $48,900. Ryan was offering an FHA rate of 11 percent, one percentage point above the permitted maximum. Today the Pepperwood is selling for $59,100, about a 20 percent increase, and Ryan is offering an FHA rate of 13 percent, one point below the maximum.
Obviously the house was a bargain a year ago, but is it still a deal at $59,100, and with the interest two percentage points higher? If a couple is in a $350-a-month apartment, wouldn't they be smarter to stay put and hope for a decrease in interest rates? While waiting the situation out, they would, in effect be saving $417 a month -- the difference between their rent and what their total payment would be on the Pepperwood. They would also save about $175 month in utilities and maintenance.
If they waited a year, they would save slightly more than $7,000, money they could then put toward a bigger down payment, assuming they decide then to make the plunge and buy. Furthermore, by then, they'll have the advantage of getting the recently approved variable interest rate, and get the benefit of any downturns in rates over the life of the mortgage.
But would they really "save" more than $7,000? And if they took a fixed-rate mortgage, would they be stuck with that for the life of the mortgage? The answer to both questions is no.
Even if the Pepperwood appreciates at only a 12 percent, instead of a 20 percent, rate over the next 12 months, it would be worth $7,092 more, or a total of $66,192. That alone would wipe out the $7,000 "savings" the couple gained by staying a year in their apartment.
Had the couple moved into the Pepperwood now instead of waiting a year, their income tax refund (based on interest and real estate tax deduction) would amount to $1,800. So now the couple is out at least $1,800.
But what if interest rates do go down? Wouldn't the couple -- assuming they have the variable rate mortgage -- more than make up that $1,800 loss over the life of the loan?
The problem with that thinking is that few prognosticators are anticipating a steep decline in interest rates. The consensus appears to be that rates will hover between 14 percent and 15 percent through the rest of 1981, possibly staying put at 14 percent. But of course during period, houses will continue to appreciate, regardless of interest rates fluctuations.
While some real estate insiders are talking gloom and doom ("The word is 'grim,'" said Fred E. Wilson, senior vice president of Washington Federal Savings and Loan Association), sales figures for new houses tell another story. According to Renee Regardie, president of Housing Data Reports, total sales for the first quarter of 1981 were 6,477, or almost 20 percent higher than the 5,407 of the first quarter of 1980. First-quarter sales in 1979 were 6,574.
The strongest sectors of the new-home market so far this year have been condominiums and town houses on the lower end of the price scale. The softest part of the market has been higher-priced houses, especially those over $130,000.
There are indications that builders will be focusing on the obviously active lower end of the market. Porten Corp. in Rockville, for example, plans to build 800 town houses in the Germantown area that it hopes to market in the $50,000-$60,000 range. "We see a tremendous need for affordable housing throughout the 1980s," said Porten executive Steve Exkert, "and we're going to do everything we can to reach it."
Jackson W. Goss, president and chief executive officer of Investors Mortgage Insurance Co. in Boston, which has surveyed mortgage patterns nationally, pointed out that only 30 percent of all mortgages are made by federally chartered savings and loan associations -- the institutions that can now grant variable-rate mortgages.
Asked whether he would take a buy-down or government-insured mortgage, at the below-market rate of 13 percent to 13 1/2 percent now available, or wait for a possibly better deal under variable rates, he said, "I'd grab it [the available rate]."
Perhaps the most durable adage in real estate is "location, location, location," meaning that the buyer should, above all, pick a good neighborhood where property is bound to appreciate. But in today's superheated market, that truism has been stood on its head.
Consider the nearly identical town houses that Michael T. Rose is building in Montgomery and Prince George's counties. The Surry Walk town houses on University Boulevard in Montgomery start at $118,000. The same town houses in Woodstream in Greenbelt start at $85,000. Woodstream is only six minutes from the New Carrollton Metro station. Surry Walk is about eight minutes from the Silver Spring Metro station.
Which development has the "location, location location"?
When shelter was cheap and plentiful, looking for the affordable house was as easy as pushing a cart down a supermarket aisle. There was a lot to choose from.
But now all but the most affluent must be value shoppers. Value may mean buying a twin of a Montgomery town house in Prince George's for $33,000 less. Or it may mean buying a two-bedroom town house in Fairfax or Montgomery instead of waiting two or three years until a three-bedroom town house can be afforded.
As Bruce Steele, head of housing programs for the Metropolitan Washington Council of Governments, said;
"We have come to the end of the road, in terms of what we can afford. There just isn't going to be continued improvements, more gidgets and widgets."
No more gidgets or widgets, but maybe, just maybe, value. CAPTION: Picture 1, Ryan Homes says this two-bedroom town house in Newington Forest, Fairfax, has become a best-seller as buyers have become increasingly interested in smaller houses. By Larry Morris -- The Washington Post; Picture 2, $85,000 town houses at Woodstream, which is near the New Carrollton Metro station in Seabrook. By James Parcell -- The Washington Post