VOL. 118 | NO. 187 | Friday, October 15, 2004
Mortgage Quarterly (lead)
Third quarter mortgage rates
Mortgage Industry Remains Strong
Refinances down, but still-low rates keep lenders busy
The Daily News
Despite the fact that refinances have declined from 2003,
when they comprised as much as 70 percent of local lending business, the
mortgage industry remains strong, lenders said.
A total of 17,665 trust deeds were filed in the third
quarter, down from 22,734 in the same three-month period last year, but above
the 17,248 filed in third quarter 2002, according to The Daily News Public
Records Database, www.memphisdailynews.com.
Interest rates. A
major factor in continued strength in the mortgage lending market is the fact
that interest rates have remained low.
Rates are, to the contrary of what everybody thought,
holding steady, said Fran Warner, president of the Memphis Mortgage Bankers
Association. They are still good, and we look for them to stay that way this
A few months ago, many lenders believed rates would begin to
increase this year, making an impact on the still-strong residential real
estate market. But so far in 2004, that hasnt been the case, as rates for a
30-year, fixed-rate mortgage have hovered in the range of 5.5 percent to 6
Weve seen the interest rates come down over the last
several weeks, particularly our 30-year fixed rate and 15-year fixed rate,
said Michael Wiegert, vice president of SouthTrust
Mortgage. If we were going back to January 2004, I think most folks would
agree that they would have thought the rate on a 30-year loan would be higher
than where it is right now. Rates are still very attractive.
Keeping steady. That
could have something to do with the upcoming election.
In this third quarter, theyve been pretty steady, Warner
said. Weve just hit peaks and valleys. Were in an election year, and things
are just radically different in election years. The economy grows in one regard
and it stops growing in another.
But because the low rates have hung on, activity has
Our business has been good, said Jim Beaty,
senior director of LJ Melody & Co., which focuses on the commercial real
estate sector. Its not quite as robust as last year, but
its nevertheless going to be a good year.
Refinances down. Because
most people looking to refinance loans did so in 2003, the number of refinances
has dropped significantly this year.
Its probably about 30 percent of overall mortgages right
now, but there are still people out there who didnt refinance, Warner said,
comparing the market to 2003, when refinances made up close to 80 percent of
business. There are people out there who, because the short-term rates have
spiked up that would affect home equity lines, are now combining their first
and seconds into one mortgage.
A total of 3,621 second mortgages were filed in the third
quarter, down from 3,795 in third quarter 2003. There
were 3,409 filed in third quarter 2002.
Strong summer market. A
total of 6,253 trust deeds were filed in August, ahead of 5,687 in July and
5,725 in September. The August increase in lending activity probably was
affected by the start of a new school year, Warner said.
Its right before school starts, and the way the school
system is now, you have to have a contract to be able to prove you live where
you live, she said. Anyone looking to move, August was pretty much the last
month to move and get their kids in a school they wanted them in.
Commercial market. Activity
in the commercial sector was mixed during the third quarter. But low interest
rates are making borrowing an attractive option.
Loan volumes are at all-time highs, Beaty
said. Borrowers are frequently paying pre-payment penalties in order to
refinance loans at these low rates.
The majority of current commercial activity is transaction-driven,
as opposed to new development, Beaty said.
Other than in the retail sector, there really hasnt been a
lot of recent new development, he said. In Memphis in the industrial sector, the
larger developers tend to be sellers and, of course, the buyers tend to be
borrowers, so transactions are driving a fair amount of the business as opposed
to the refinance side of it.
Looking to the future. Whether
due to the upcoming election or other factors including the economy, analysts
predict that rates will remain steady.
We may see an occasional upward jump, but Id look for them
to stay down because the economy is not recovering at the rate they hoped it
would, Warner said. Cars have to sell and houses have to sell for everything
else to move forward.
The general rule of thumb is that rates stay low through
the winter months and usually about March or April, they peak a little bit
because thats when activity is strong.
I think most people dont anticipate any major change to
our rates, he said. I think most would say they anticipate them going up a
little bit. Maybe by the end of the year, well be seeing them around 6
Beaty said commercial loan
activity looks promising.
2005 and 2006 ought to be very good years, based on the
volume of business that was originated in 1995 and 1996 on a 10-year basis, he
said. So we know weve got those rollovers coming up.
Adverse effect. Beaty expects rates to rise by mid-2005. He cautioned that
if rates rise too much, it could be bad news for the local market.
Significantly higher rates would have an adverse effect on
the Memphis market, particularly in the office and multifamily categories, he
said. Those markets continue to be soft. Office vacancies are 15 percent
higher depending on the submarket. Multifamily vacancies are not abnormally
high, but concessions continue to cause economic softness in multifamily
business. So higher interest rates are not good for those two
particular product types.