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VOL. 118 | NO. 187 | Friday, October 15, 2004

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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 last quarter.

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 percent.

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 remained steady.

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.

Wiegert agreed.

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 percent.

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.


PROPERTY SALES 32 176 2,507
MORTGAGES 26 101 1,687