Bankers’ Hours column: High mortgage rates aren’t the end to home sales
OMG! Mortgage rates are at 5%! Home sales will drop dramatically; potential buyers will flee the market! (Of course, home sales aren’t that robust right now, because, in practically every market, and every price tier, there aren’t a lot of homes available.)
When I got out of military service in 1961, and landed an entry level job in the mortgage lending business, the FHA rate was fixed at an effective 5.5% — 5% rate plus a half of a percent for mortgage insurance. The rate for VA guaranteed loans was a flat 5%. This was around the end of the so-called “Eisenhower Recession.” so the housing market was relatively healthy.
In the late ’70s and early ’80s, mortgage interest rates skyrocketed: Conventional mortgage rates for the larger loans were bouncing around at 11% and 12%, with agency (Fannie and Freddie) not far behind in the 10’s. At the time, I was with Aspen Savings and Loan, a thrift with a business model that involved mortgage banking on Colorado’s Western Slope, with a particular focus on the region’s resort markets. These years were among the best we experienced in terms of profitability.
After close to half a century observing mortgage rates, I’ve concluded that, sure, rates are a vital component of home buyer capability; obviously, the more the money costs the more difficult it is to borrow it. (Admittedly, the first several years of those 50 or so, I didn’t understand what I was looking at, but the phrase “Close to a half century” has a nice ring to it.) The cost of money is important, but, I believe, of more significance are housing supply and the disposable income of the potential borrrowers.
Despite what you may have recently heard and read, home ownership continues to be an integral element of the American psyche. Maybe it has its roots in the territorial imperative of our hunter-gathering, proto-farming ancestors. The main reason that more people are renting is because they have to; one of the more unfortunate examples of collateral damage resulting from the combination of war, pandemic and resulting supply chain problems, along with disruption in the immigrant labor pipeline, has been the virtual disappearance of the entry-level housing buyer. We can only hope that this absence is temporary, for the sake of the national economy.
People will pay for housing if they have the income to service the cost of homeownership. This outlay includes everything from taxes, insurance, maintenance to the prevailing hourly charge for a plumber. And, yes, interest as well. If you’ve got a good job, and a healthy paycheck, just one element in the mix isn’t going to disqualify you from the American Dream.
In 1962 my wife, Joan, and I paid $11,500 for our first home. We assumed an FHA mortgage and got a second mortgage from the Realtor that sold us the house. It was one of hundreds built by Franklin Burns, a postwar builder-developer in the Denver area. They were referred to by most everybody by the piquant sobriquet of “Burns Better Built Birdhouses.”
We were ecstatic. We had a front and back yard and even a little plot for a small vegetable garden.
We were homeowners.
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His email is firstname.lastname@example.org.
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