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HOUSE HUNTERS PAY FOR WAITING.

Byline: Gregory J. Wilcox Real Deals

These are becoming trying times for fence sitters in the San Fernando Valley real estate market.

Loans are more expensive.

Prices continue to escalate.

Supply and demand are heading in opposite directions.

In short, the longer you wait to buy, the less house you'll get for your money - a trend that looks like it has some staying power, especially in light of a couple significant events last week.

First, the median price of a single-family home in April hit $240,000, an annual gain of $29,000. That's only $5,000 less than the all-time high reached three times in 1989. Meanwhile, prices gained $17,000 from March to April, putting the record within reach.

But sales fell 9 percent on an annual basis, in part because mortgage interest rates have been rising.

Last week the Federal Reserve Board, taking a more aggressive stance against inflation, pushed up short-term interest rates by half a percentage point. Those rates have now climbed 1.75 percentage points in less than a year.

But inflation fears sent mortgage interest rates up in advance of the Fed's action.

``They think it's moving too fast and we are entering what is traditionally a very busy time of year for home sales,'' Doug Perry, first vice president of the consumer markets division at Countrywide Home Loans in Calabasas, said of the housing market. Here is how this hot economy increased the monthly cash outlay of someone who bought the median priced home last month vs. a year ago with a 12 percent down payment:

In April Countrywide's interest rate for a 30-year fixed mortgage was 8.75 percent. Add in mortgage insurance, taxes and insurance and the monthly payment is about $2,052.

And the buyers would need a household income between $85,000 to $90,000 annually to qualify.

In April of 1999 the median price was $211,000 and buyers needed a household income of at least $75,000 to qualify for the same loan at an interest rate of 7.63 percent. The payments would total $1,663 a month, a difference of $389.

Whether sales will continue to slide remains to be seen, but that seems to be what the Fed has in mind. And some analysts doubt that interest rates fluttering near 9 percent will have much impact on sales.

``The thing is interest rates are very important but they are not a make-or-break factor. Interest rates are critical when people are pushed to the edge of their finances,'' said John Karevoll, a real estate market analyst for DataQuick Information Systems.

Karevoll thinks that some buyers are deferring their purchase to see which way rates head in the coming weeks and that by June and July sales will bounce back.

Keith T. Gumbinger, vice president of HSH Associates, a mortgage information service, said that rates will follow inflation.

If it goes up, so will rates.

And even today's rates are not that bad, historically speaking. An average rate of just over 8 percent is still low for this decade and well below the rate of 1996, he notes.

There are things consumers can do to cut their borrowing costs. For example, Countrywide offers loans that can be fixed for 3, 5, 7 or 10 years and then adjusted once a year after that period.

Buyers can also lock in a loan rate for 30 days while they shop for a home.

While Countrywide's rate was in the 8.7 percent range at the end of April, homebuyers could have locked in at the beginning of the month at three quarters of a percentage point less.

Here are some tips from HSH and Countrywide on how to handle the current rate environment and even make it work for you:

--Don't panic. Rates are fickle and actually follow the whims of the bond market. Rates generally rise quicker than they fall but a sharp jump in a day or week can be erased over the next few weeks.

--Check out a product called a ``2-1'' buydown. You start with a rate about 2 percentage points under market for the first year. After that, the rate increases 1 percentage point the second year and by the same amount in years three through 30. The final interest rate usually ends up about one-half percent above what you would pay today.

--Pay more points to lower the rate. This is a good option if you have extra cash. Each point will cost about 1 percent of the loan amount, so it can be expensive. Each point can lower the rate by one-eighth to one- quarter of a percentage point.

--No down or low down payment loans are now popular. But you can lower you monthly payment by putting more money down.

--Make the high rates work for you. If you have equity in your house and are planning a big purchase, such as a car, or want to pay off high-interest credit card debt, an equity loan might be a good option.

Interest payments on car loans are not tax deductible. But equity loan interest is.

Ellis M. Balsam, a partner in the accounting firm of Carter, Balsam and Ginnegar in Van Nuys notes that credit card debt is typically in the 19.8 percent range. Say a home equity loan is 10 percent and you use it to wipe out credit card debt. You've made a profit of 9.8 percent.
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Title Annotation:Business
Publication:Daily News (Los Angeles, CA)
Date:May 21, 2000
Words:912
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