Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 8, 1994 TAG: 9405120012
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: By LON WAGNER STAFF WRITER
DATELINE: LENGTH: Medium
Well, some potential homebuyers apparently wanted to make sure mortgage rates had hit their lowest point in 20-years, so they waited and waited. Then the rates started going back up.
Tim Garrison, general manager of Boone & Co., a Roanoke Valley real estate brokerage, said home sales jumped in March after the Fed boosted short-term rates for the second time in as many months.
"What it did was, some of the people who were playing around or waiting to get the loan, it got them off dead center," Garrison said. "They were waiting for it to hit rock bottom, then it went up, and they said, 'Hell, I better get in there.' "
The first quarter's economy, both in the Roanoke Valley and the rest of Virginia, was battered by several ice storms. The winter weather meant overtime pay for gas and electric company workers - and the additional lines crews they had to hire - but it halted many other companies for days at a time.
But the questions Garrison and others have about the first quarter's economy focus not on what happened, but what it means for the coming year. The 7 percent spurt in the nation's economic growth - as measured by the gross domestic product - at the end of 1993 was largely viewed as consumers realizing the recession was over and buying things they had needed for a long time.
Likewise, the 2.6 percent GDP growth in the first quarter was thought to be slowed by winter storms in the east and the earthquake in California.
Crestar Financial Corp. economist Christine Chmura said she thinks the Federal Reserve will boost interest rates one more time - probably in May - and that will be the last increase in 1994.
Chmura suggests that the long-term bond market will begin to drop, bringing interest rates back down.
Though mortgage rates are not nearly has high as they were, say, 10 years ago, Garrison pointed out that just a half-percentage point difference can add up. He computed that a $100,000 loan at 8.5 percent would have a monthly payment of $769, while the same loan at 8 percent would have a payment of $734.
"It's not enough to really get all bent out of shape about, but you do notice it," Garrison said.
T. Michael Smith, president of Ferguson, Andrews and Associates, a Roanoke-based investment firm, noted that political maneuvering as much as anything could determine the fate of interest rates during the next two years.
Unlike Federal Reserve Board Chairman Alan Greenspan, two new Clinton Administration appointees to the Fed board believe that a "little inflation is not bad." Clinton's supporters would rather see higher inflation and more jobs than a more acceptable inflation rate of 2-3 percent.
"It's really better for the long-term economy if [inflation] could be in the 2-3 percent range," Smith said, "but when you're in a four-year election cycle, that's just not possible."
by CNB