THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Tuesday, November 22, 1994 TAG: 9411220641
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Medium: 60 lines
When mortgage rates rise, thoughts of buying houses turn to remodeling.
Local housing starts and home sales have declined as fears of economic uncertainty and higher short-term interest rates have rattled consumers. As a result, people who wanted to move up from their existing houses are looking at staying where they are and improving where they live already.
The size of the remodeling market has doubled in less than 10 years, said Chris Nicholson, communication manager of National Association of Home Builders Remodelers Council. About 39 percent of all remodeling consists of maintenance and repair work, but the remaining money spent on remodeling is voluntary, he said.
Homeowners will spend $116 billion on remodeling projects this year, up from $108 billion in 1993, according to the National Association of Home Builders in Washington, D.C. Remodeling spending will go up to $122 billion next year, the trade group forecasts.
The remodeling boom has been fueled by the Federal Reserve Board's sixfold increase in interest rates this year. The most recent hike came last week.
Mortgage rates reached a three-year high of 9.19 percent last week for a conventional 30-year loan. They had been less than 7 percent in October 1993.
``The Fed's move to raise interest rates is definitely keeping some homebuyers out of the market,'' said Virginia Association of Realtors President Edwin C. Hall. ``We've been seeing home sales trending downward since the rates started to rise.''
Housing starts for October dropped to 428 residential permits, worth $35.7 million, in Hampton Roads. That's down from 485 permits in September, said Bob Lyons, executive director of the Builders and Contractors Exchange, Inc.
``It's like someone shutting off the tap,'' he said. Housing starts have ``gone down, down, down, down.''
Home builders expressed concern as well.
``There's no question the market's down right now,'' said Tuck Bowie, president of the Tidewater Builders Association. ``People that were on the bubble now may no longer qualify for the house they wanted to afford. It's a real concern about what's happening with the economy, what's happening with the interest rates.''
Realtors are also feeling the effects of softened consumer demand.
Pending home sales dropped nearly 24 percent in Hampton Roads to 1,476 single family units under contract in October from 1,935 in October 1993.
Home sales in Virginia dropped 15.7 percent from last year's figures due to rising interest rates as well, said the Virginia Association of Realtors.
Pending home sales in the state dropped to 4,527, compared with 5,371 in October 1993.
``It's quite drastic,'' said Lydia Lorenzen of Metro Multiple Listing Services Inc., which provides listings of available homes for sale to local Realtors. ``My feeling is that people are waiting to see what's happening with the bases and, now that elections are over, what the economy's going to do.''
KEYWORDS: HOME SALES by CNB