Another period of low interest rates in August caused home sales to surge 9.4
percent, marking the second-highest housing starts in more than 20 years and
another busy time for the mortgage industry.
A drop in interest rates from 6.06 percent for a 30-year fixed mortgage in July to 5.87 percent in August spurred home sales.
The sale of single-family homes rose to 1.184 million annual pace from a July pace of 1.082 million, the Commerce Department reported Sept. 27.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
Though the days of 3.265 percent record low interest rates appear to be over, the mortgage industry should remain healthy for years to come because rates are still significantly lower than they were a decade ago, said Jay Rowley, president of the Rhode Island Mortgage Bankers Association.
The volume of mortgages is about 40 percent lower this year than it was in 2003, but the market is still hovering around the $1.9 trillion high mark, Rowley said.
“Business is off in the mortgage industry, but that’s because many people have refinanced already.
“The record volume of 2003 could not continue with interest rates increasing, but it is still healthy. This is the fourth-consecutive year of a $2 trillion market in America,” he said. “Since we are starting at record low rates, they have a long way to rise.”
On Sept. 27, average rates on 30-year fixed mortgages in Rhode Island rose 3 basis points (one-hundredth of a percent) to 5.35, according to Bankrate.com’s Your Best Interest report.
Someone taking out a $165,000 30-year fixed mortgage at that average would pay $921.38 a month for the life of the loan.
Six months ago, the average rate in Rhode Island was 5.17 percent, bankrate.com reports. In 1994, a 30-year fixed-rate mortgage ranged from 7.15 percent to 9.35 percent, Rowley reports.
In Rhode Island, nearly 1,000 new loans closed when rates were at their lowest in 2003. Providence topped the state with $32 million in home sales in 2003, followed by Warwick, Cranston, Pawtucket and East Providence, the state Mortgage Bankers Association reports.
Nearly 12 million mortgage loans were refinanced in the United States that year, up from more than 8 million in 2002.
Many homeowners refinanced their higher interest mortgages and took cash out to buy new cars and take vacations while others paid off high interest credit cards or built additions to their homes.
“The low interest rate environment has helped sustain the economy over the past few years,” said former banker Gov. Don Carcieri at the 17th annual New England Mortgage Banking Conference held at the Rhode Island Convention Center Sept. 22 to 24.
Homeownership hit an all-time high of 68.6 percent in the fourth quarter 2003, with a marked shift of renters to first-time homeowners – who will remain a major component of the purchase market, buying about 24 million homes over the next decade, America’s Home Forecast shows.
The number of new home sales rose to 404,000 in August, the highest number since 1979.
Though interest rates have nowhere to go but up, homeownership and, consequently, demand for mortgages will increase over the next 10 years, according to the America’s Home Forecast, written by economists of Fannie Mae, Freddie Mac and national banking and real estate associations.
The mortgage industry has created an environment where buying real estate will be affordable even with higher interest rates, Rowley said.
“We have so many products – fixed rates and adjustable rates – to lower payments for homebuyers that it will still be affordable to buy as rates go up,” Rowley said.
Products like interest-only mortgages – where consumers pay on interest during the first five years of the loan – have been available for years but have become widely accepted this year, he said.
An interest-only loan at 5.1 percent adjustable rate for a $333,700 home translates to $1,390 a month. That same amount under a 30-year fixed mortgage would cost $2,000 each month.
Americans will likely need 125 million mortgages to buy a home or refinance – totaling $27 trillion in mortgage originations, the forecast shows.
As of year-end 2003, residential mortgage debt outstanding in the United States totaled $7.8 trillion – more than double the amount of residential mortgage debt of 10 years ago ($3.4 trillion as of 1993).
By the end of 2013, mortgage debt will total $416.9 trillion with an 8 percent annual increase, the America’s Home Forecast shows.
Homeownership rates are expected to exceed 70 percent by 2013 and home price
appreciation should average 5 percent per year from 2004 through 2013, the forecast
shows.
