Wednesday, January 26, 2000

Interest rates could break streak

The Cincinnati Enquirer

        The economy has been so good to Brian and Barb Welsh that it helped persuade them to buy a $194,000 home in West Chester.

        The couple just closed on a new home primarily because Mr. Welsh's job of selling sweat shirts, sports caps and other novelties to large and small colleges and universities throughout the region has been booming in recent years.

        “His business has grown so much, we just needed more space for him to store his stuff,” said Mrs. Welsh, a stay-at-home mom, who Tuesday had her hands full with the couple's two sons.

        Such faith in the economy, a high level of consumer confidence and folks feeling good about their jobs helped the Tristate post its fourth consecutive year of banner home sales.

        The number of homes sold in the eight-county Cincinnati metro area rose 1.7 percent to 26,083 in 1999, breaking the previous record of 25,651 sold in 1998, according to figures released by area boards of Realtors.

        “People are confident about the economy, taking savings from such places as the stock market and cashing in to buy homes,” said Chip Sudbrack, president of the Cincinnati Area Board of Realtors and president of Sudbrack Inc. in Evendale.

        But the threat of more interest-rate increases by the Federal Reserve could bring a halt to the record-breaking sales this year. The Fed already has boosted rates three times since June.

        Higher rates were the primary culprit that caused home sales to tumble 11.3 percent in Greater Cincinnati in December, the third consecutive down month.

        The number of homes sold in Southwestern Ohio, Northern Kentucky and Southeastern Indiana totaled 1,730 in December, down from 1,952 the previous December, according to local boards of Realtors.

        Most of that decline came in Hamilton, Butler, Clermont and Warren counties, where 1,372 homes were sold in December. That was down 10.7 percent from 1,537 sold during December 1998.

        Despite the recent declines, Tristate real estate executives are confident about this year's housing market, although they acknowledge its string of record annual sales could be in jeopardy.

        “We've been going at a record pace for years, and you can't expect that to last forever,” Mr. Sudbrack said. “The economy has to slow down at some point, and the Fed will see that it does.”

        The Fed's action to boost interest rates three-quarters of a percentage point is affecting mortgage rates.

        The average rate for a 30-year, fixed-rate mortgage was 8.35 percent as of Tuesday, the highest level in about three years, according to a weekly survey of 75 lenders by the Realtors group. That's the highest rate since May 26, 1997, when the rate was 8.40 percent.

        The latest weekly rate is up from 6.94 percent a year ago. That means a difference of $96.89 in the monthly payment on a $100,000 mortgage.

        Another factor that slowed down sales the past three months in the Tristate: The number of homes for sale was down 17 percent in October, November and December at 20,740 units, compared with 25,012 during the same three months in 1998. The lower inventory has been pretty consistent, at least during the last six months of 1999, giving potential buyers fewer homes to choose from and a tougher time finding affordable prices.

        Nationally, consumer confidence helped sales of U.S. homes top the 5 million mark for the first time ever, according to the National Association of Realtors.

        For all of 1999, there were 5.197 million previously owned homes sold, beating the previous record of 4.97 million set in 1998. Last year's U.S. sales also set a fourth straight annual record.


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