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Jitters? What jitters?

Market, rate changes cause homebuyers pause and panic

With a recent fluctuation in stock prices, and interest rates inching up, are homebuyers succumbing to market jitters?

Yes and no, said Janice Shumaker, vice president of mortgage loans for Community Bank and an officer for the Mortgage Bankers Association.

“It has caused quite an uneasiness in the market,” said Shumaker. “It’s caused two reactions. Some people are completely discouraged from looking at houses. For other people, it’s caused a rather mad panic to drive homebuyers into buying a home more quickly instead of spending the needed time to look. They tend to jump and choose the first thing they come to.”

In the $100,000 to $200,000 price range, there’s more uneasiness and panic because people have tighter budgets, Shumaker said.

“A 1% increase or decrease could have a dramatic effect on the price home they could buy,” she said.

Today’s interest rate is hovering around 8.5%, but some projections indicate a quarter point or more increase in the next few months, she said last Monday.

“We’re not seeing that much of a slowdown in home building,” Shumaker said. “People can lock in four and six months before closing, but they have to pay a little bit higher rate with an upfront lock-in fee.

“With rates as volatile as they’ve been, I would suggest that. Some of the lock-ins offered for long-term locks have float-down options. If rates go down below what home buyers locked in, they can exercise the float-down option.”

Stacey L. Wall, president and CEO of Pinnacle Trust in Ridgeland, said if interest rates keep going up, the new housing market would slow down.

“People were expecting a 50-point increase (last week) and others are already talking about another increase in July,” Wall said. “When a housing market is strong, a lot of sales in other areas go along with the purchase of a new home – washers, dryers, furniture, landscaping supplies. When the housing market slows, it tends to contribute to overall spending by consumers, which is what (Federal Reserve Chief Alan) Greenspan really wants to see happen.”

Many observers are unhappy because Greenspan is taking such a strong stance, but it’s better than the alternative, Wall said.

“A little dose of bitter medicine now is better than major surgery down the road,” he said. “I’ve heard comments like, ‘If everything’s fine and the economy’s great, why doesn’t Greenspan stay out of it?’ What he’s trying to prevent is an economy that is going too strong hit with an inflation spike that very likely could and would cause a sell off in the stock market. We had a fairly rough month in April. Much of the broad indices that measure stocks were off somewhere between 3% to 5%, but the NASDAQ was off over 15.5% in the month of April alone. If we had a significant sell off in the stock market, it would really cause consumers to pull in spending a lot and that could send us into a recession and really cause us to put the brakes on.”

The “wealth effect” has contributed to the feel-good notion about the economy, Wall said.

“When people feel good about the economy, they feel good about spending money and there’s been a wealth effect that has contributed to that,” he said. “Over half of all Americans have money in the stock market now and most have it earmarked for retirement. When the 401(k) in their company did well, people felt better about going out and buying a bigger house. But if the opposite happens and people see their retirement funds sink, they’ll pull in on spending.”

Nell Wyatt, owner of Coldwell Banker Nell Wyatt, Inc., Realtor, in Ridgeland, said sales agents, who market several areas in Jackson, particularly northeast Jackson, Ridgeland, Madison and the Ross Barnett Reservoir area, “haven’t seen a slow-down, but that might come later. Right now, we’re getting into our busy season, with people transferring in and out of the area.”

To avoid a rushed decision, Shumaker said mortgage lenders are recommending that homebuyers not only get pre-qualified, but also obtain a pre-approval letter before they look for a house.

“The time involved in doing that is anywhere from a day or so to weeks, depending on a customer’s needs and/or financial picture,” she said. “Then, after they have received a pre-approval letter, they should begin a search in the price range for which they’ve been pre-approved. They need to analyze what they’re looking for in a home and how long they plan on being in it. That may affect the market they would look within.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at mbj@msbusiness.com or (601) 364-1018.


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