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Interest Slide Produces 'Torrid' Market

June 23, 1985|JOHN BETZ WILLMANN | Special to The Times

WASHINGTON — An increasingly favorable ratio of family income to house prices and the cost of financing has enabled housing affordability to reach an able-to-buy peak for this decade. Both home builders and potential purchasers are also encouraged and stimulated by the recent lowering of the Veterans Administration rate on home mortgages to 11 1/2%.

That's the second slide downward for the VA rate within 30 days!

The federally set VA mortgage rate sometimes acts as a bellwether for conventional and now market-set FHA rates. In this instance, however, it appears that the lowering of the VA rate is more of a reaction to the conventional market for mortgage rates, that has been moving slowly, but steadily, downward in the six weeks since the Federal Reserve Board lowered the rates charged to lenders for money they need from the federal government.

In a word, the housing market is "torrid" as result of lower costs of mortgage financing. More people are eligible to buy houses in terms of their pocketbook capability, and more people also are financially able to buy more expensive houses.

The decline of 0.5% in the VA rate enables a home purchaser to pay about $25 less on the monthly payment to finance the average federally-backed loan of $64,000. Only a year ago, that average monthly payment would have been more than $120 higher because of a higher level of interest rates.

Continued Downturn

Seasoned observers are predicting that the downturn in mortgage rates will continue and that the lowest home loan rates since 1980 will be available this summer. Thus, it will be no surprise if 30-year, fixed-rate mortgages under 12%--and perhaps close to 11%--will be available next month. And, purchasers will not have to pay more than two to three discount points!

Meanwhile, the lower cost of borrowed money also has spurred the stock market to new highs. The "cooling off" of the national economy gets credit (no pun intended) for the lowered costs of borrowing, both short- and long-term. Only an unexpected upsurge in the economy and business borrowing could reverse the trend on mortgage rates. And that could happen before Labor Day if the economy heats up.

While the private housing sector glories in an early summer of content for housing construction and sales, there is mounting concern about the Reagan Administration's proposal to eliminate Section 202 subsidies to housing for the elderly from the 1986 federal budget. A spokesman for the American Assn. of Retired Persons told a House subcommittee that cutting funds for housing for elderly persons demonstrates a "reckless disregard for human needs."

AARP, which unabashedly demands everything possible from the federal government for older members of our population and also for retired federal and military persons, contends that direct spending for federally assisted housing for low-income persons has already been cut by more than 60% in the past four years, whereas tax breaks have been increased for upper-income persons.

Break on Rents

Although some statistics show that a majority of Americans over age 65 are financially well of--even better of than the average person under 65--AARP insists that the "vast majority" of older persons remain in the lower reaches of income distribution. AARP says one of five older persons is in the poor or near-poor financial range.

Those people--and almost all of us know of some people living in decent federally assisted housing--get a break on their rents (but far from a free ride) because federal programs have provided new or rehabbed housing on which the rents are limited because the developers get federal subsidies and tax breaks.

That's why AARP and a coalition of groups interested in federal assistance to housing for lower-income persons endorse a bill (introduced by Rep. Henry B. Gonzalez (D-Texas) that would generate 284,000 new assisted housing units for low-income and elderly persons. But with Congress generally in a mood to reform tax legislation and decrease federal spending this year, the Gonzalez bill for federal housing aid is likely to wind up on the cutting room floor.

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