Mortgage rate drop
cheers isle builders

With rates below 7%,
new-home developers hope
to see more buyers

By Rob Perez
Star-Bulletin

After another dismal year of new home sales, Hawaii builders will take any good news they can get.

That's why they're pleased interest rates have fallen to the lowest level in nearly two years.

For the first time since February 1996, the average for a 30-year, fixed-rate mortgage has dropped below 7 percent, according to a national survey released last week.

The Federal Home Loan Mortgage Corp. said 30-year mortgages dipped to 6.99 percent, down from the previous week's 7.07 percent and the lowest since the rate was 6.94 percent in the week ended Feb. 16, 1996.

Many local lenders likewise have dropped their rates below 7 percent.

Each time rates drop consumers' buying power increases, enabling them to purchase a little more house for their dollar.

For shoppers on the margins, such a decline can qualify them for home loans they previously couldn't get.

While the slight drop isn't expected to generate a flurry of new deals, builders say the change will be a plus at a time when much of the news hasn't been good.

Through the first nine months of 1997, for instance, new single-family home sales on Oahu were off 30 percent from the same period a year earlier, according to the latest data available at Prudential Locations Inc. And 1996 was a poor year for Hawaii builders.

"The low interest rates certainly will be a help," said Pamela Jones, chief financial officer for Schuler Homes Inc., one of Hawaii's largest home builders.

To show how much of a help, consider this example:

When interest rates were about 7.75 percent earlier this year, a 30-year, fixed-rate mortgage of $200,000 required a monthly payment (principal and interest) of nearly $1,433.

At 7 percent, the monthly payment is about $1,330 -- a savings of $103 a month or $1,236 a year.

As the message of such benefits spreads, builders hope that will boost the confidence of people reluctant to strike deals in a sputtering economy.

With the spotlight on lower interest rates, "the buyer psychology turns into a mind-set of buying instead of waiting," said Rick Hobson, sales and marketing director for Gentry Homes, another large Hawaii builder.

The real key to a turnaround, though, will be when the economy recovers enough to start creating new jobs, builders say.

Until then, builders say, they draw encouragement from whatever positive signs they see, such as a rebound in existing home sales on Oahu.

A sustained rebound in existing home sales often is considered a precursor to a turnaround in new home sales. The increase in existing home sales on Oahu, however, has yet to translate into an improvement in the new-home market, builders say.

Still, the lower interest rates should help boost the existing-home market here and spark a surge in demand for mortgage refinancings as well, lenders say.

"The (refinancings) are going to be a big thing," said Mark James, vice president and branch manager for All Pacific Mortgage, which is changing its name to Irwin Mortgage Corp. on Thursday.

James said his Hawaii branch has had an increase in refinancing applications since about Thanksgiving. Many people are turning in applications and putting them on hold, waiting to see if rates will fall even farther, James said.

He said people with mortgages of 8 percent or higher should consider refinancing to lower their monthly payments.