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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Waiting For 1996 May Lower Rates For Home Buyers

Chicago Tribune

Should you buy a home now, or wait and hope that mortgage rates go lower?

According to an economic forecast by the Mortgage Bankers Association of America, 30-year, fixed-rate mortgage rates are indeed on the way down. Rates are predicted to fall from an average of 8 percent in 1995 to 7.63 percent next year.

The MBA’s economic experts gazed into their crystal balls at the trade association’s 82nd annual convention here and conjured up both good and bad scenarios for 1996.

Lyle Gramley, consulting economist for the MBA, said the outlook is good for housing: “As we head into 1996, the signs are clear we’re pulling out of the slump in early 1995, the fundamentals are favorable, inflation is under control, consumers are confident, and while consumer debt has risen, there is no big problem.”

Gramley said some experts expect the Federal Reserve Board to lower short-term rates at its meetings in either November or December. “But we don’t expect lower rates until the middle of 1996.”

The key to lower rates is federal deficit reduction. “The Fed won’t act until it sees the whites of the deficit reduction’s eyes,” Gramley said.

He added, though, that the major impact of a balanced federal budget on lower rates won’t kick in until the next century.

Continued low inflation is a positive factor for housing.

“Low inflation can be attributed to the global economy. U.S. firms can’t raise prices because they operate in an arena of international competition. This has lead to restructuring and downsizing to improve productivity,” Gramley said.

Though the outlook for housing and affordable mortgages looks bright, there are some potential political clouds on the horizon.

David Lereah, the MBA’s chief economist, said the proposal for a flat income tax may seem like a good idea, but would have a devastating effect on home ownership.

“The flat tax would eliminate the homeowner mortgage deduction, thereby affecting 28 million American families. This would be a direct 15 percent hit on home prices-a total $1.7 trillion drop in the value of homes in the U.S., which would spur a rise in foreclosures and defaults,” Lereah said.

He also is concerned about proposals in Congress to eliminate the Federal Housing Authority or lower its 100 percent insurance on loans: “Targeting the FHA would price low-income people out of the market - as many as 100,000 to 200,000 families.”

Lereah said the best news is that inflation is under control.

He predicted a substantial rise in the national homeownership rate by the year 2000.

“The Baby Boomers, as they age, may increase, rather than decrease, their homeownership,” Lereah said.

The MBA estimates that housing starts this year will total 1.34 million, down 8 percent from 1994. But lower mortgage rates are expected to stimulate an increase to 1.36 million units in 1996.

Single-family home starts in 1996 will hit 1.07 million, while multifamily starts will be 257,000, according to the MBA.

Other elements of its forecast:

New home sales are expected to edge up 2.2 percent next year, and existing home sales will be up 3 percent.

By the end of this year, 30-year, fixed-rate mortgages will dip to an average of 7.75 percent, and one-year adjustable-rate mortgages will be at 6 percent. At the end of 1996, these rates will be 7.57 percent and 5.71 percent, respectively.

Existing home sales also will be on the upswing - from down 5.3 percent this year to plus 3 percent next year.

New home sales will rise 2.2 percent next year, and prices will be up 3.6 percent.

The MBA ranked Las Vegas as the fastest-growing mortgage market in the United States. The index - which was dominated by Sun Belt locations - was based on mortgage originations, population, households, employment, personal income and other housing data.