A combination of record-low interest rates and brisk housing sales has Rhode Island mortgage lenders enjoying a rarity in their field: two consecutive boom years.
“We’re off the charts,” said George Sullivan, president of Statewide Mortgage Corp. in Warwick. Sullivan said mortgage volume at his firm is up 30 percent over last year and is double that of two years ago.
“We thought last year was a big year, but it just keeps getting better,” said Sullivan, who said about 70 percent of business has come from refinancings, with the remainder being home purchases.
For Leaders Who Don't Have Time to Get Sick
Top performers guard their calendars, delegate relentlessly and optimize every hour of the day. Health,…
Learn More
Area mortgage brokers say it is uncommon for low mortgage rates to coexist with such a hot housing market. The average 30-year fixed mortgage rate as of last week was 6.22 percent, according to Freddie Mac, having fallen steadily from around 7 percent at the start of 2002.
Meanwhile, Rhode Island’s housing market is among the country’s hottest, with home values appreciating at record levels. During the second quarter, existing single-family home prices jumped 19.5 percent over a year earlier, according to the Rhode Island Association of Realtors.
It makes for a potent mix: First-time home purchases, refinancing and home-equity loans are all booming, lenders say.
“I don’t remember ever having this strong a housing market coupled with these kinds of rates,” said Anthony J. Marouchoc, managing general partner at New England Pacific Mortgage Co. in Warwick, who has worked in Rhode Island’s mortgage market for nearly 20 years.
Loan applications at New England Pacific in July tripled the volume of July 2000, and closings were up fourfold from two years ago, Marouchoc said.
But he said it might be tough to duplicate the total volume from 2001, when there was a wave of refinancings in the fourth quarter as 30-year fixed mortgage rates fell to around 6.5 percent. Even though rates now are bobbing below that level, Marouchoc said demand is evening out.
“I think the big rush for ‘refis’ that we saw late in 2001 is over,” he said. “There are only so many refinancings out there.
“But we’re very satisfied with this volume,” he continued. “It’s more evenly distributed, so it’s easier for our staff to contend with the volume, and customer service is better.”
Marouchoc said there has been a slight slowdown in refinancing by homeowners whose primary objective is to lower their mortgage payments. Now the big push is coming from homeowners who are looking to consolidate debt or to get cash out for home-improvement projects, college tuition or other big-money needs.
Sullivan at Statewide Mortgage agrees that more homeowners are looking to take cash out with their refinancing. He uses a hypothetical example:
A homeowner with a 7.5 percent rate on a $150,000 loan may now get a rate around 6.25 percent. The difference in rates would allow him to borrow $180,000 while keeping about the same monthly mortgage payment, using the extra $30,000 for debt consolidation or for home improvements.
Rhode Island’s soaring home prices also have kept interest in refinancing high, because homebuyers are lured by the promise of ever-larger savings. For example, Sullivan said a 1 percent dip on a $200,000 loan could equate to a savings of $2,000 a year.
Perhaps the only drawback to the state’s mortgage market right now is a tight housing inventory that has kept a lid on the volume of home sales. Whereas values are spiking, the number of units that have sold this year is comparable to past years, according to statewide statistics.
“We have 100 people pre-approved for a mortgage, but they can’t find a house, or they’re finding ranches for $200,000,” Sullivan said.
Even so, the lowest mortgage rates in a generation allow more first-time homebuyers to afford homes that they might not have been able to buy if rates were a point or two higher.
Rhode Island Housing and Mortgage Finance Corp. last month cut mortgage rates for first-time homebuyers to below 4 percent – the lowest rate since it began offering mortgages in 1973.
“People who before could not qualify for a mortgage, now they’re in the market,” said Chris Barnett, a spokesman for the agency. Rhode Island Housing, which offers home loans either directly through the agency or through a network of participating lenders, financed more than $100 million in home sales last year.
With the mortgage market remaining so brisk for so long, some lenders are wondering how long it can last.
“You’d think that eventually we would run out of people to refinance,” Sullivan said. “I realize this will come to an end eventually.”
But Stephen E. Adamo, president of the Rhode Island Mortgage Bankers Association, said he doesn’t think things will slow down for mortgage lenders until interest rates creep higher.
“There are always people who will want to refinance at these rates,” Adamo said.
