Mortgage Rates May Be Headed for 5-Year Low

Interest rates on fixed-rate home loans are heading toward their lowest levels in nearly five years and should fall even further in the weeks ahead, one of the nation’s major mortgage-lending trade associations said.

The average interest rate on a 30-year, fixed-rate loan dropped to 12.38% in late May from 12.83% in late April and could fall to 12% or below very shortly, according to a survey by the Mortgage Bankers Assn. of America.

Although mortgage rates have been inching downward for months, the slide has picked up in velocity in recent weeks.

“The rates have fallen off the table,” Warren Lasko, executive vice president of the mortgage association, said in a telephone interview.

VA Lowered Rate Again

Last week, the Veterans Administration lowered the maximum rate on home loans that it backs to 11.5% from 12%, the second decrease in less than three weeks and the third so far in 1985.

Another mortgage index calculated by the Federal Home Loan Mortgage Corp. (Freddie Mac) fell below 12.6% Friday and may drop to 12% later this month, said agency economist Dave Andrukonis.

“This is all happening so quickly that most buyers don’t realize what is going on yet,” remarked Dudley Herndon, president of Encino-based Deseret Pacific Mortgage.

Some economists argue that now is an excellent time to buy a house with a long-term fixed-rate mortgage because these rates may be close to bottoming out.

Freddie Mac’s Andrukonis believes that mortgage rates will start up again in July, as soon as the economy begins to improve. A stronger economy will force the Federal Reserve Board to tighten its credit policy, which in turn will nudge interest rates higher, many experts believe.

T-Bill Rate Up

Indeed, interest rates on short-terms Treasury bills, a widely followed economic barometer, rose sharply Friday after the Labor Department announced that the U.S. economy created 345,000 new jobs in May.

The news sparked a rise in interest rates because it showed that the nation’s economy is stronger than had been previously believed.

Interest rates on adjustable-rate mortgages also have been dropping dramatically, the Mortgage Bankers Assn. survey found. (The telephone poll covered only 20 of its 2,200 members, but Lasko said the survey was a “fair representation” because rates don’t vary widely from association to association.)

The average introductory rate on an adjustable mortgage, which stood at 10.63% six months ago, is now 9.73%, the poll found.

Home Federal Savings & Loan Assn. of San Diego last Thursday slashed its introductory adjustable rate to 9.75% from 10.25%, the first time the S&L; has ever had a single-digit interest rate on an adjustable-rate loan.

Adjustable-rate loans were introduced at federally chartered S&Ls; in 1981 during a period of double-digit rates.

San Francisco-based First Nationwide Savings on Friday cut its introductory rate to 9.45%, down from 9.75% a week ago and 11.375% on May 3. The continuing drops have had a dramatic impact on the state’s real estate industry, Bank of America economist Michael Salkin said.

Housing Construction Explodes

Housing construction exploded in the first four months of 1985, running at an annual rate of 236,000 new homes a year, the highest level since 1977, Salkin said. Further, home resales--the bread and butter of the residential brokerage industry--was 21% higher in April than in March, Salkin said.

“The (single-family) housing market is really hot right now,” adds Fred Sands, a Los Angeles real estate broker.

Salkin also noted that home values in California have gone up about 4% so far this year. “It has been a long time since we have had increases like that,” the bank economist said.