5th News Special Report: Housing Building Blocks

whose special for may 28th good evening I'm Rick Roberts for years Americans have lived in homes of their own and thought little of it then our economy went sour and the dream of homeownership slipped beyond the reach of many people to buy a home these days you'll probably need a big downpayment be able to afford some hefty mortgage payments and chances are you'll have to find an ingenious way to beat the high cost of mortgages inflation and high interest rates have meant hard times for builders and have slowed sales of existing homes tonight we hope to find out what's happening to the housing industry where things currently stand and what we can expect in the future first though a look at the new home business this is a rare sight these days carpenters and other craftsman building new homes these homes will be part of des moines home Expo show in August bill McLaughlin is building one of the houses a 10-year veteran of the home building business McLaughlin is president of the Greater Des Moines Home Builders Association he says this is not the best of times for Association members right now the new homeland estrella is pretty depressed and the fact that high interest rates are causing a slowdown in construction we get caught by interest rates right now which are nationally are very high and we of course are paying for those high interest rates and in addition inflation is causing materials to go up labor to go up and so forth so it's basically money not long ago builders would construct homes and there would be plenty of buyers there are still a lot of people who want to buy new homes bought inflation and high interest rates have put their dreams on hold the fire comes along and it goes in to work on his financing he finds it to high interest rates then it's difficult for him to qualify I hope that President Reagan's economic program turns us around real quick-like and I have faith in a will the building slump could lead to yet another problem the loss of skilled workers this is another major concern of ours our craftsmen and our subs that work out our jobs if they're not able to obtain work here they go elsewhere if they stay and that other location and do not come back then we're in trouble when things start to come back we've lost our trained people since new homes are too expensive for most potential buyers they are turning instead to the existing home market but once again high interest rates prevent a lot of people from buying but sales are starting to pick up the Greater Des Moines Board of Realtors says 458 houses were sold in April that's up 58 percent from the same month last year I think the demand is there and people have become accustomed to paying a little higher interest rates they are needing to move the key to getting more people into homes of their own now is the availability of money but we need some incentive for people to save which creates capital for the market the demand for capital has been great as you know some incentive for people to go back to savings so that it does create those funds for first mortgages reduction of interest rates as inflation comes down we hope the interest rates will come down Curt says Realtors have to work harder than ever these days to help buyers find ways to finance a house they'll have the old stand by the FHA and the VA programs which are fixed rate interest rates land contracts or contracts for deeds where the seller basically the seller lends the money to the buyer there are new mortgage programs coming along all the time we try to explain those to the buyers and to the sellers and which fits their particular case the best and that's what we try to do be it a new house or an existing home builders and Realtors all say now is the time to buy the reason that even if the economy gets better and interest rates come down the house that sells for sixty thousand dollars this year will cost a lot more next year despite the discouraging atmosphere surrounding the housing industry people are buying houses a young Eames couple decided the experts are right and now is indeed the time to buy even though it's expensive they decided to get a home of their own before the dream slipped beyond their reach Kim Randall and her husband Dave had been thinking about buying a home of their own for a couple of years soon they'll be moving out of this Eames duplex and into their own home a ranch house a few miles south of Ames it took the Randalls a long time to find a house they liked and could afford it took about four months of heavy-looking we looked every weekend and we looked a lot with the real-estate agent I worked a lot with him we found that what we liked was above our heads in price what we could afford was an older home that needs a lot of work on it and we kind of disappointed at first but after the initial heartbreak we started looking again we were okay like most prospective homebuyers Kim was shocked at how much home ownership would cost not only we were shocked about the cost of the house but we when we went to the banks and savings and loans the cost of the interest just pushed us out of our limits also even though the purchase of their home has been an expensive proposition the Randalls are glad they're taking the plunge now we waited quite a while before we got married and we can afford to buy a house we felt we could afford quite a bit of a house now and we were real surprised we can't afford nearly what we thought we could and I'm really nervous about the young people that are just getting married with the variable interest loans that will change from year to year I don't think a lot of kids will be able to afford homes in five ten years the Randalls were able to finance the purchase of their home or the 10 percent land contract we'll find out about the different ways to finance home purchases and more about the current state of the housing in the street in just a moment joining us now for a further discussion of the housing industry a margin Peterson of aims savings alone and Chuck Gray who operates his own real estate agency in Ames margene I'd like to start with you and let's find out where interest rates tab right now for home mortgages they're high aren't they very high as of today the best rate that in savings alone has is 17 percent on an 80 percent loan that would require a 20% down payment 20% down payment we do have 90% money available 10% down payment at 17 and a half why are the rates so high the rates are high because we need the income coming into the shop to offset the savings rate that we're paying to our favors right now it's our loan rates are based on our cost of money and we're now living with very low yield mortgage rates six seven eight nine percent and we need the higher rates to offset that to try to bring it back into perspective any sign of the rates going up or down I think the rates will stay high with the administration that we're in where there's a very large money supply right now we're still spending on defense money with the tightening the Federal Reserve is and I think the rates will stay high double-digit all through 81 all through 81 we're really going to need some vast improvement in the economy before we can look for anything to go down I would very definitely what about mortgages at these rates do you have many people who even come in and want them since the rates went to 17% it has slowed the activity down although we have taken a few applications at the 17 the biggest thing is can they qualify at the 17 on a monthly cash flow basis is it tougher to qualify now do you take both the husband and the wife's income into consideration yes that's the way they make application for the law what about the availability of money for mortgages that rate with a lot of people suddenly decided what the heck I'll spend the 17% is there enough money at that rate if the demand became very strong I think we probably would have to raise our rates because we do not have the savings coming in that we need to keep up what about the length of mortgages is still right 30-year mortgages or is that all out the window our institution we are still basically 25-year term mortgages although we will go a 30 on a new construction and we may find in the future that more and more loans will be going to the 30 or possibly 40 year term Chuck has a fellow who tries to get people into houses one big important thing you have to do now is connect them with the financing what problems do you run into out there what Margie has said it is very true however there are right of other creative methods of financing several institutions will add on to their if they have the mortgage on the house they will add on to it and possibly only raise the rate to twelve and a half and they'll go up to ninety percent of value in some cases no they won't do it in all cases FHA VA Zoar fifteen and a half with those there are also points involved which have come down since those rates have gone up for acreages this type of thing federal land bank is still well under what the conventional loan is I think they're still 11 or 11 and a half with the 20% down then again we have the contracts land contracts our contracts for deed which ever you prefer to call where in the lending institutions case they will raise the rates not up to their maximum they'll raise them to they vary with institutions anywhere from twelve to twelve and a half some cases women three quarters or in some cases they have to leave them set so that means that the seller could sell the house with an we're right on interest and in most cases they can range anywhere from 10% on contract to 1213 depending which a lot of people feel is a very good rate and will probably remain a good rate that seems to be a pretty popular way right now to to sell a housing to buy a house there has to be a caution with that also the fact that those land contracts are usually written with what we refer to as a balloon payment or the entire balance is due on such-and-such a date the buyers have to be very conscious of that when financing becomes available on other means or other sources they should redo it as quickly as possible how does the land contract work the buyer buys it on a contract for a specific period of time three four five years and at the end of that time they have to find financing they have to pay that depends on what's written into it you can you can be as creative with a land contract as you can painting for example you may have a loan on your house of twenty thousand dollars you sell it for forty the buyer puts down ten okay you're carrying him on a contract for $30,000 you owe twenty so he's paying you on the basis of thirty you owe twenty you continue to pay the lending institution it's pretty we amortized any period of time that makes it easier for the buyer or however twenty-five years but entire balances do it five did that answer the question yes it did what about I want to ask Margene about so often you see in the paper assuming mortgages you can assume someone else's mortgage what a lending institutions think of that if you've got a mortgage on the books at a pretty decent rate from a few years ago how do you handle that the lending institutions would like to better their position especially because of the need for the higher income today so the institutions are going to increase that rate whenever they can increase that they do try to make it way below the market rate our assumption right now is twelve and a half or owner-occupied profit that's a good rate if somebody can qualify to assume that mortgage today you sell many houses now with people assuming mortgages if they can acquire the down payment and we find it in a lot of cases they'll get help parents something like that or in some cases where we're writing second mortgages they'll assume it and the owner will carry back what is called a second mortgage so they assume it with a lending institution then the seller here again is financing the balance of the $10,000 so to speak possibly a different rate but that underlying mortgage possibly may have stayed the same down payment is a big part of the game is is there any way to buy a house with a small down payment any more or do you need a pretty good chunk of change VA is 100 percent FHA still have their same guidelines as down payment on contracts we have sold them with nothing down rare we've been in the 90 percent market since the end of October November of 1980 and I think we've made one or two 90% loans to date so there's very little activity as far as the lending institutions in that particular area still what the cost of housing these days 10% of seventy or eighty thousand dollars comes up with a pretty good chunk of money at most learning institutions will allow somebody to say have a gift letter from a parent or a relative where they don't have any obligation to pay it back the other thing that I think is important in these high rates is to interest rate the government still letting everybody deck deduct from income taxes 100% here in 50 percent tax bracket and you're paying 17 percent for a loan here in effect pane 8 and a half because you're taking the entire thing off your income tax a lot of people are buying houses for tax deductions today is that still a good investment really late oh yes and the other thing we're finding a lot of people doing and we're fortunate with Iowa State University parents are buying houses for children to live in the wallet while attending college I just did that with my son and well works fine I've heard of that in other parts of the country have saya and I've read some I think this year we've sold three or four just more activity and especially if they have maybe two or three children going to college because then they just keep passing it for the use of the other time on the property for four or five six years and then sell it I would imagine they're pretty good through our first one I think we ever did that way we just turned over a year ago and he'd owned it for four years and he came out very well said it didn't cost of things in this child to school how are real estate people and the lending people getting along these days what assumed was tight money problems and the realtor out looking trying to put people in the houses or is there any friction out there I don't think so I thought I think we understand their problems they understand our problems were both a very essential part of the economy yes we may argue with them why can't you do better than that but they will bend over most generally backwards to try and put together for the transaction for a simple reason if they can raise that rate from eight and a half to 12 aren't they better off what is the housing market like these days who are the people that are out buying now oh I think there's a lot of people interested in buying right now a lot of people because they do feel that their appreciation and value real estate is going to continue and I believe it is so there and you know a home ownership is something that has come down through years people really want to own a home can everybody on a whole I think so even the somebody making eight nine ten twelve thousand dollars a year I think they can come pretty close that may not be as good at home as some of the others are for thirst ways contracts an excellent way for them type of income contract now what about the price of houses now I noticed in the last cost-of-living report from the government that house prices were not going up for the past three or four months as much as they had been in the past is that leveling off as you want to answer me all right as a does that depend on the area I think it depends a man he really the other thing is that they take the average bottom and come innings what are what's it like buying a condominium isn't that a little more involved in buying a house you have association fees and things to pay for can it be a little bit deceiving thinking that it's going to be a little cheaper than home ownership I don't think so for example the home ownership will pay for they all vary but generally garbage collection painting an exterior maintenance of exterior lawn care snow removal okay let's say I buy one I don't need a snow shovel or snow blower of power more anymore my garbage is picked up with it it may be more than what you would have paid it normally but these costs are all pointed out right upfront and what they cover in in this type of in some cases there swimming pools tennis court privileges quite a number of things how about central part of Iowa and around Ames we saw earlier in in Des Moines building of new homes is down is that true in this area yes January was the first month that there was not a billing permit issued in in the city of Ames of any kind repaired model anything what about the availability of existing houses they're available any size shape form you know foresee as in some cities maybe a squeeze on the rental side of the coin with people not being able to buy a lot more people rent personally eventually we will you think so we will this year I think it will be tighter than it has been the university's not billing more Reynolds so I think you will catch up when without more houses being built it will become more tape Chuck you mentioned that empty nesters just a few minutes ago do you see many people retiring anymore and selling their homes getting something smaller and the reason I ask this is that they may have that home paid off or close to being paid off with four or five percent mortgage than selling that and trying to buy something else at 17% what are retirees doing now with their homes empty nesters and retirees are two different people all right the kids are gone oh they're still working okay okay while you're still working they're still and possibly a higher income tax bracket now if the kids are gone this type of thing yes they're very much interested in that free time aspect of they want the yards mowed the yard shoveled they're vice versa they want to play golf they want to travel they want to turn the key walk away don't worry about my own the yards shoveling snow painting the outside now the retirees that's a little different proposition the empty nesters are people and work from 40 years old on it or their kids are gone I think it was President Carter that suggested doing away with the income tax deduction for interest on mortgage payments did and I want to ask you Margene there are some who say this this is one of the reasons that interest rates are high is because we're deducting this we're not putting it into the Treasury and so the government to pay off their debts has to go borrow more money and the government's in competition with with private the private sector people who want to buy you have any funds along that line I don't know probably the right answer for that question you stopped me work on that one there's a bottle a shock something like that I have no business I would it would bother the home builders the Realtors and lending institutions there would be no I there would be no homeownership there be no advantages whatsoever it would put and it would knock a lot of investors out of it tall rather than the privacy and security of their own home it would virtually halt right and ownership right what are we going to be looking at five ten years down the line our house is getting smaller the new ones that are being they will they will town it will be more compact more per acre energy efficient it's going to become very very popular it has to come that way land costs are very high we don't want to use up our AG land so we're having to go to other type lands that may be further out so you got to be more energy efficient and in the meantime you'll still look for the creative ways to find illegals house we looked for those back when it was good what's the price of a house going to be in a few years from now my prediction or what I read somewhere well either I read that the chief he comes for the National Association real there's predicted the average price be 120 thousand by 1985 I don't think he'll be that high but nonetheless it gives a little credence to the philosophy of by now now is the right time to buy thank you very much we've been talking with the Chuck gray who operates a real estate agency here in Ames and also with margene Peterson's name savings alone thank you very much we hope we've provided some answers for some people who might be looking for a home and thank you for joining us tonight