Recent rate hikes affect real estate transactions

The Federal Reserve Board's decision to hike the prime rate over the last year to offset rising inflation has slowed Springfield's real estate market, according to Dana Elwell, vice-president of Guaranty Federal Savings. Citing Greene county real estate statistics for May 1999 and May 2000, he said that transactions are down, but they're still showing good activity.

The Fed's interest rate hike in May left some wondering if enough time had elapsed from its earlier hikes to adequately assess the impact.

"I don't know if they actually had statistics in institutions and places that report quarterly to see what the effect was yet," said Charles Gottas, president of Systematic Savings & Loan Association.

"I think when they raised the rates a quarter of a percent twice, which equaled a half percent, they effectively slowed down the economy at that time," he added.

Dawn Selim, president of Southwest Mortgage, said, "Resales in some of the new subdivisions are slower." She said homeowners are still "refinancing because they're debt consolidating and putting themselves in a cash position so that they have a cushion."

Rising interest rates can feasibly stimulate residential real estate business.

"We really have not been affected by the interest rate increase," said Judy Huntsman, president of Coldwell Banker Vanguard, Realtors. She said some people might be more active in the market because they feel interest rates might go still higher.

Robert Murray, president of R.B. Murray Company, said the rate hike's impact on the long-term commercial market would be a "general slowing down, but right now we haven't seen that." He added, "right now, I haven't seen it affect the transactions we're working on, but in the future, yes, I do believe it will affect commercial transactions."

Elwell noted some differences between residential and commercial real estate.

Residential deals are done more according to need and situation. Often the timing behind borrowing is based on life needs, such as the necessity of a bigger home or having to move to another town, he said.

On commercial buys, "there's no question, from a business perspective, if they decide to borrow money they go through more diligent effort" to get the best rate, he added.

This is because commercial properties need to generate money for the owner.

"When you're looking at just the income of the commercial property, you're buying to pay back not only the loan, but to pay your return on investment," Elwell said.

Mark Snow, a sales and leasing associate for Follman Properties/ONCOR International, said he's seen activity slow a little bit in the leasing area.

If rates continue to rise, he said, "it is going to affect a lot of people's decision-making process on whether to purchase or whether to lease."

As always, the best real estate deals go to the savvy. The key is focusing on the source of the money.

"Buyers need to definitely shop around, not just for a good rate, but for a strong lender," said Paul Dizmang, owner of Dizmang Associates First Choice Real Estate. He said lenders who stay in tune with what the market is doing on a daily basis can often find a better rate for their clients.

Selim added that rate shopping online for financing can be tricky. "There's no control on the Internet," she said.

People think they're getting a better rate, but it can change at closing. For supposed convenience and speed, they sacrifice local underwriting and local attention, she added.

While interest rates have increased, the point they're now at has been reached several times over the last two decades.

"For the last couple of years we've had abnormal low rates," Gottas said. "Now we're in the 8 percent range, and that's where it's traditionally been for a long time. So, it's a perception of a major increase and, really, it's kind of back where we've been, and the economy worked, and there were a lot of people able to afford a home."