Home sales sound despite interest rate increases

La Crosse Tribune, Jul 03, 2000 by Cahalan, Steve

Thanks to a solid economy, sales of existing and new homes remain strong in La Crosse County despite increases in mortgage interest rates in the past year, officials of the Crosse Area Realtors Association, La Crosse Area Builders Association and First Federal Savings Bank La Crosse-Madison said last week.

Earlier in the week, the' National Association of Realtors reported that sales of existing single-family homes rose 4.3 percent in May to a seasonally adjusted annual rate of 5.09 million units from a level of 4.88 million units in April, reflecting pentup demand. The gain followed an April decline of 6.2 percent, which had been blamed on rising mortgage rates. Fred Flick, NAR's vice president of economic research, said. last week that sales are expected to slow over the second half of the year.

On Thursday, the U.S. Commerce Department said sales of new homes fell 0.2 percent in May to a seasonally adjusted annual rate of 875,000 after falling 8.6 percent in April. Also Thursday, Freddie Mac said its lender survey showed the average interest rate on 30year fixed-rate mortgages rose to 8.22 percent for the week ending Thursday, up from 8.14 percent the previous week. At the same time a year ago, 30-year rates were at 7.71 percent. Until last week, mortgage rates had been decreasing for several weeks. Freddie Mac buys mortgages from lenders and packages them into securities that are sold to investors.

On one-year adjustable-rate mortgages, Freddie Mae said lenders were asking an average initial rate of 7.26 percent last week, up from the previous week's 7.22 Percent. A year ago, the average ARM was being offered at 6.05 percent.

On Wednesday, the Federal Reserve decided to keep key U.S. interest rates unchanged for now after six rate increases over the past year, pointing to tentative signs that U.S. economic growth is slowing.

Close to being on track

Despite higher mortgage rates, "We're very close to being on track with last year," said Larry Jiracek, president of the La Crosse Area Realtors Association. He also is a broker associate with Gerrard-Hoeschler Realtors.

Jiracek said that from January through June 26, 423 homes on the local Multiple Listing Service were sold, down from 445 homes for the same period a year ago. The average sale price was $116,678, up from $105,552 a year ago. Homes were selling for an average of 97 percent of the asking price, the same as a year ago.

"I haven't really seen a slowdown," Jiracek said. "The last two years were record years" for association members, he said. Jiracek said he is optimistic that Another sales record will be set this year.

He also said higher mortgage rates have not deterred local prospective homebuyers, because the local economy is strong and the unemployment rate is low. "We've had companies like EDS (Electronic Data Systems) come to town and there are a lot of good employment opportunities," he said.

Jiracek said prospective homebuyers who might be concerned about higher mortgage rates, might opt for the lower rate that an adjustablerate mortgage offers, thinking they may refinance with a fixed-rate mortgage in a year or two if rates go down.

"For first-time home buyers, the biggest thing is coming up with the down payment," Jiracek. "There are programs that help with that." Also, the Wisconsin Housing and Economic Development Authority offers mortgages with low interest rates and low down payments to help low- and moderate-income people buy their first home.

Jiracek said the average sales price has increased in the La Crosse area in the past year because of appreciation in the value of homes. "And we're seeing more and more people go into the move-up home a lot faster," because of the strong economy. "You're talking going from a $80 000 to $90,000 home to a $140,000 to $150,000 home."

Construction still strong for new homes

Nationwide, single-family home construction is slowing mainly because of higher interest rates, after two recordsetting years, said Vicki Markussen, executive officer of the La Crosse Area Builders Association.

"Our building members are staying very busy," Markussen said. One reason for the strong new-home market in the La Crosse area is that demand for new housing is greater than what many builders can supply. The low unemployment rate means builders are unable to expand their work force to meet the demand, Markussen said.

"As long as consumer confidence remains high, and there is low unemployment, continued job growth, and relatively low mortgage rates, new-home construction will continue to boom in the La Crosse area," Markussen said.

Fewer building permits for new single-family homes were issued from January through May in La Crosse County compared to the same period last year, Markussen said. "I would not say that the drop in building permits is significant so far this year," she added. If the decline continues through September those figures would be more telling of how interest rates are affecting the home-building industry, she said.

"It is not unusual after a record-breaking year in J998 and a better-than-average year in 1999 to see a cool down in the market," Markussen said. "We are still nowhere near the low numbers the industry saw in the early '90s."