Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, November 7, 1993 TAG: 9311050026
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: DOUG LESMERISES STAFF WRITER
DATELINE: LENGTH: Long
The newlyweds, married in April, won't have to hunt for houses anymore. Mortgage interest rates, at a 25-year-low, allowed them to move from the Roanoke townhouse Tom Hurlbut bought four years ago into a four-bedroom home in Botetourt County's new Apple Tree West development.
"We were waiting to move up until we theoretically could stay in that home forever," Tom Hurlbut said.
He said three reasons prodded them to make the move now - their townhouse was the only one in their neighborhood on the market, they liked the new house and interest rates were so low.
"But without the rates, the other two wouldn't have mattered," said Hurlbut. "The rates could have killed it.
"I didn't expect that we could afford what we're buying. Going in, I never would have guessed we'd get what we got."
But unlike many Americans for whom low mortgage costs were not sufficient incentive to buy, the Hurlbuts had no concerns about job security. Tom is an accountant for Norfolk Southern Corp. and Elaine is a travel agent.
And unlike other periods when mortgage rates were enough to spur home sales and construction, concerns about job security are putting a damper on the industry.
There's a "tug-of-war" being waged between low mortgage rates and a lack of job growth, according to John Tuccillo, chief economist for the National Association of Realtors in Washington.
"Ultimately, you can never divorce housing trends from job trends," Tuccillo said.
In an economy with normal employment growth, the lure of interest rates at a 25-year low would be enough to yank buyers into purchasing houses.
But with the economy still sluggish and prospective buyers uncertain of their own financial situations, the interest rates seem to be firing more refinancing of existing mortgages than prodding new buyers into the market.
Most mortgage institutions said refinancing is accounting for 60 to 85 percent of their business. Others, by choice, were keeping a 50-50 mix of refinancing to new mortgages.
Jim Chidester, Roanoke branch manager of Crestar Mortgage Corp., said his institution had so many prospects, it could pick and choose refinancers.
"Any institution could flood themselves with refinancing," he said.
But new statistics show that building, though not booming, is improving.
Permits for single-family housing and home sales in the Roanoke and New River valleys increased in the first half of 1993 as compared to two years ago. Building permits rose 12.5 percent and home sales increased 60 percent in the first nine months of 1993 from the same period in 1991.
"Most builders are busy," said Lewis Jamison, president of the Home Builders Association of Virginia. "They're maybe not as busy as they were in the late '80s, but they're elated to come out of a 2 1/2-year recession."
But if home building boomed in the 1960s when mortgages were around 7 percent, why not now?
"Twenty-five years ago, we were near the peak of the longest time in history without a recession," said Michael Carliner, an economist for the National Association of Home Builders, a Washington trade association.
The economic situation harkens back to another era when interest rates were low.
"In the 1930s, the rates were much lower, but there wasn't building. There weren't other conditions for the demand," Carliner said.
While the national economy is in a statistical recovery, the question of whether the recession is truly over still haunts the building industry. Most leading indicators have been showing growth over the past months. New-home sales shot up 20.8 percent in September, the biggest leap since 1986.
Performance of the home-sales and construction industries are largely captive to how confident Americans feel about their personal economic futures.
A national survey of consumer confidence showed a 7 percent decline in October. Expectations for the future were down 10 percent from September and had declined 37 percent from December. The research done by the Conference Board, a New York business research organization, also showed that fewer individuals are anticipating improvement in their family economic situations.
Fabian Linden, executive director of the Conference Board's Consumer Research Center, said he normally would expect a lively home-buying industry with mortgage rates so low.
"But combined with fairly insecure consumers, [home buying] is subdued," said Linden. "People say they're worried about jobs. They say jobs are hard to get and they're afraid to get into a long-term commitment."
There is a variety of opinions among mortgage lenders, builders and realty brokers on what exactly is happening. Some have noticed little change in the industry, others cited significant improvement but still short of a boom. Others said they can't imagine business being much better than it is.
Refinancers are flocking to mortgage institutions in packs that the lenders and brokers barely can handle. But that can be expected, as the owners face little risk to lower their monthly payments and potential savings worth thousands of dollars over the 15- or 30-year life of a loan.
But making the leap into buying a home has greater risks, especially if there's a possibility of job loss or little growth in family income.
Karen Stoevener, a mortgage loan officer at the National Bank of Blacksburg, says she has refinanced loans for some owners two or three times in the '90s. However, she's had less business from new buyers than she had expected.
"Five or 10 years ago, rather than refinance, people moved up" into new and larger houses when mortgage rates fell, she said. "That's not true anymore."
"The low rates aren't stimulating much in the purchase line," said Debbie Dufault, a mortgage underwriter at First National Bank of Christiansburg. "When people don't have jobs, they can't take advantage of even the lowest rates."
These trends seem to have less of an effect in Western Virginia than nationally. The Roanoke region's usual economic steadiness softens the impact of swings in the national economy.
"Roanoke is an unusual place," said Ron Miller, building commissioner for Roanoke. He said low interest rates have helped slightly, but that his figures show only a small increase in residential permits issued in 1993.
"We never seem to boom or burst. It's kind of steady," he said.
"Roanoke is a somewhat isolated set or circumstances," said Andy Kelderhouse, vice president of construction with Fralin & Waldron Inc. "The bad's not as bad, and the good's not as good. There's some comfort in that."
What does that mean for area home builders?
Steve Strauss, president of Strauss Construction Co. in Roanoke County, said the low interest rates have knocked down monthly payments for the houses he's building, increasing his sales. Strauss is working on three developments, one in Botetourt County and two in Roanoke County. Two areas are aimed at move-up buyers in the $160,00-$175,000 range, while the other focuses on first-time and older buyers with townhouses around $80,000.
Strauss said Roanoke's not completely out of the national scope. "National influence is a lot bigger than people like to admit or realize," he said.
He mentioned some local plant closings - including last month's closing of the Grove Worldwide construction-platforms plant in Salem - caused by national parent companies being forced to eliminate some local branches.
"We don't live in a vacuum or a fishbowl. At least someone has to be pumping in the oxygen."
James Petrine, owner of Enirtep Inc. in Franklin County, said his business has been steadily improving, but he's not "willing to go out on a limb for spec homes."
Petrine is working on a subdivision at Smith Mountain Lake. He just completed a $245,000 house he built on speculation and is more than halfway finished with a $179,000 home. He won't start another spec home until he's sold the two he has. That's because he sees the custom-housing trend increasing.
In fact, much of the region's housing construction is of custom houses for presigned buyers, rather than speculative construction put up in hope of luring buyers. For the builder, that generally means a slower pace of business but less financial risk - a posture generally reserved for economic slow periods.
Petrine also sold four lakefront lots last month and is optimistic for spring.
Eddie Fort, president of PDM Inc. in Franklin County, said he's much busier than he was at this time last year. He said potential buyers are driven by a "once-in-a-lifetime chance to capitalize" on low mortgage rates. PDM has three houses under construction and has been working steadily since June. Fort also does much of his construction at Smith Mountain Lake but last year had to take on a project elsewhere because lake business was down.
David Vaughn, president of Dominion Builders in Roanoke and president of the Roanoke Regional Home Builders Association, said he's sold $2 million in homes in the past three months, doubling his sales from the same period last year. He said he usually has $4 million is sales for an entire year and hadn't had such a brisk three months in four years.
An increase in the building industry has been noticeable since the first of the year, Vaughn said.
"There may never be a [better] opportunity again in the foreseeable future for people to buy homes," he said.
First-time buyers have been particularly active, according to Richard Wimberly, manager of the new homes division for Boone & Co., a Roanoke County real estate brokerage.
Many young buyers may now actually be able to purchase homes and make monthly payments that are lower than what they may be paying in rent.
"First time buyers feel pretty secure," said Wimberly. "They're afraid of missing out. Concern for the economy is not holding them back."
by CNB