Home » NEWS » Home building, mortgage lending slow with rate hikes
Rates still right for buying, says one industry observer

Home building, mortgage lending slow with rate hikes

Around the state, home building and mortgage lending activity has slowed due to higher interest rates, but the market is still considered healthy and may even be rebounding as people become accustomed to higher rates.

“Things are still pretty steady,” said Marty Milstead, executive officer, Homebuilders Association of Mississippi. “It is still a great time to buy. Interest rates are very attractive. There has been a little bit of slowdown, but that helps the buyer. There is more inventory out there. It is very much a buyer’s market right now.”

Milstead said that home building continues at a good pace throughout the state. In fact, state contractors have been so busy with the boom in construction in recent years that the slowdown comes as something of a relief.

“Last year was such a boom year,” said Bob McKay, executive vice president of the Homebuilders Association of Jackson. “Home building permits compared to last year are down 18%, but there is not really a lot of concern about the increase in interest rates. You never like to lose business, but it was so hectic last year for most of the builders and subcontractors that a little bit of relief or resting period really hasn’t been bad for anybody.”

Interest rates increases impact the contractors’ bottom line. Higher rates also mean that there are fewer houses permitted, built and sold. But McKay said that the present interest rate level is not a large concern for homebuilders.

“Rates are still relatively reasonable,” McKay said.

Harry Baxter, vice chairman of BancorpSouth, Tupelo, said that the bank found that when the rates starting creeping up, it did significantly impact the demand for mortgage loans. But it appears that in recent weeks people have gotten over the “rate shock” and demand for loans is rebounding.

“It appears in the past three weeks the demand is coming back,” Baxter said. “I guess we attribute it to people getting more comfortable with the rates getting higher. The consumer thinks rates have stabilized and aren’t going to drop anytime soon. So they might as well do a mortgage loan.”

Before the interest rates started climbing, many state banks were doing a brisk business in mortgage refinancing. With higher rates, refinancing has gone to almost nothing.

John McGalliard, manager, Hancock Mortgage Company, said that home building and mortgage lending activity are down nationwide. Although mortgage activity is down 20% to 30%, McGalliard said that is less of a decline than is being seen on average nationwide.

On the Coast some of the higher priced homes aren’t moving as fast as in the past, and Realtors are seeing longer listing periods before sales are finalized.

“It isn’t growing like it has in the past,” McGalliard said. “The pickup in interest rates has slowed things, and has brought into play an affordability issue. There has been a trend towards the adjustable rate mortgage product to address the affordability issue. Long range everyone has a favorable forecast on home buying activity. The mortgage industry believes rates have stabilized. The fixed rate product is starting to come back a little. The inversion in yield curve is starting to come back.”

McGalliard said that normally long-range rates are higher than short-term rates. The inversion in the yield curve is a reversal with short term being higher than longer rates. But now rates are going back more towards the norm of having higher interest rates on longer terms.

On the Coast, the slowdown in home sales has been attributed to the higher interest rates combined with slower growth with no new casinos or other big projects coming on line to attract a large number of new residents.

“The market is now operating at levels closer to pre-gaming levels,” said Rick Rogers, president of the Mississippi Gulf Coast Multiple Listing Service (MLS) and senior vice president of Monticello Homes, a division of the Mitchell Company. “A lot of us have a short memory and forget how things were back in the late 80s and early 90s. It wasn’t that it was bad then, but it was easier to measure and predict. It wasn’t as volatile a market as it is now.”

Rogers disputed a report in the July 7 edition of The Wall Street Journal that said that median home prices in the Biloxi/Gulfport market fell more sharply in the first quarter of 2000 than in any other metropolitan area in the country. According to National Association of Realtors (NAR) figures, the average home price in the Biloxi/Gulfport area declined 23.4% to $65,600.

The Mississippi Gulf Coast Multiple Listing Service does not calculate a median price but does figure an average sales price for single-family homes, which it said increased 7.5% to $110,617 in the first quarter of this year compared to the same period in 1999. The Coast MLS is using a new system to collect housing numbers, and NAR says that may have led to an inaccurate picture of the Coast housing market.

Rogers said there are segments of the Coast market where the housing market is still very active with the number of units being sold up over last year. He said sales are particularly strong in the Orange Grove/North Gulfport area and in Woolmarket.

“This market is okay,” Rogers said. “My forecast is a steadily increasing market for the next couple of years, but not at the pace we have seen in the past five years. We saw a fairly dramatic growth curve from 1993 to 1999, and that curve has settled down somewhat in 2000. But it is going to be fine. It is going to continue to go up. Builders are continuing to identify and develop.”

Rogers said several planned communities including Traditions, a proposed 4,000-acre development, are indications of the health of the Coast housing market. If the Coast market was as weak as some suggest, Rogers said those kinds of large developments wouldn’t be happening.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.

About Becky Gillette

Leave a Reply

Your email address will not be published. Required fields are marked *