Industry insiders on watching the rates rise

By: Tony Brown, Staff Writer//July 24, 2013//

Industry insiders on watching the rates rise

By: Tony Brown, Staff Writer//July 24, 2013//

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CHARLOTTE ─ The average U.S. rate for the benchmark 30-year home mortgage climbed over the 4.5 percent mark this month for the first time in more than two years.

The fixed-rate average ticked back down a few tenths of a percent last week, but over 60 months, the trend is up.

Since a dip in May to near historic lows, just below 3.5 percent, they rocketed up more than a full point earlier this month.

Rates are still well below the 17 and 18 percent being quoted during the Jimmy Carter administration, the highest since World War II. But the real estate market today is still so fragile and vulnerable ─ and buyers and sellers still nervous ─ that the recent upward movement has stirred just about everybody in the industry.

Residential real estate agents, of course, are feeling it. So are subdivision developers, homebuilders and commercial real estate acquisition and development folks. The various kinds of loans might differ, but rates are up all over.

The Mecklenburg Times assembled an informal panel of Charlotte-area real estate industry insiders whose fates and fortunes are affected by the cost of borrowing money.

Here are their answers to: Are you concerned about rising interest rates? And why?


Karla Knotts, vice president of Knotts Development and Knotts Builders, a homebuilder and residential developer, is nervous because her customers are:

You mean other thancausing me some anxiety? Why? The weather is delaying projects. The construction shortage is compounding those delays. And those delays, on top of the interest rates, are making our customers nervous. Now you’ve got to remember that 10 years ago, when the market was booming, rates were 7.5 percent, so this is not causing me to lose sleep. When I got into this business, rates were at 16 percent. But the bottom line is, I don’t like my customers being nervous. At every closing, we say, did you ask your parents what their rates were?


Tom Pearson, president of Pearson Land Corp., a land developer and former mortgage banker, sees multiple facets to the question:

It’s still a bargain in my lifetime. When I first started as a mortgage banker in 1967, we still had some VA loans made right after the war on the books, some at 5 percent, and we thought, “Man those people have a deal!” The lower the rate, the more people can buy; they have more buying power. But, on the other hand, when the rates start changing, it gets a lot of people off the fence. It’s a tap on the shoulder. I like to see them low, but if they stay too low, the country ends up making bad decisions sometimes; it causes us to think rates will always be like this, but they will not be. In commercial real estate, when rates get too low, it inflates values; so when rates go up and balloon payments for those loans are due, if rents are not up enough to cover that, you could have some problems. It’s just that some bad decisions get made; if rates stay too low, that might not be good long-term.

Virginia Popovich, agent for Keller Williams and leader of the Popovich Team, which specializes in south Charlotte residential real estate, sounded busy, and said she was about to get busier:


I see it as a good thing so far. It’s making buyers who were vacillating get off the fence because they’re concerned it’s going to get worse before it gets better. It’s had a positive effect in south Charlotte. I put four houses on the market this week, and I’m putting another three houses on the market next week.


Todd Williams, senior vice president for investments for Grubb Properties, assembles land for big apartment projects; he says loan rates are a complex thing:

Real simply, when the cost of borrowing goes up the amount of proceeds generally goes down. If you’re buying an apartment community, you have to buy with more equity because the loan proceeds are much lower. That’s a negative impact, investing more equity. The second factor is that your debt service is higher. Folks who bought properties in the recent past who bought them with long-term fixed-rate loans, they’re looking really, really smart right now. Multifamily loans tend to be provided by a number of different entities, not usually banks: Fannie (Mae) and Freddie (Mac), which are quasi-governmental; HUD; and the big insurance companies ─ those loans tend to be longer and fixed. Bank loans tend to be variable and short. If you have a shorter-term, variable-rate loan from a bank, and rates spike like they have in the past 30 to 60 days, that can be a real problem.


Alan Banks, owner of Evans Coghill Homes and president of the Home Builders Association of Charlotte, a homebuilder and spokesman for his industry, remains cautiously sanguine:

Looking at it as the president of the association, I’d have to say that the rates have been so historically low, so now we’re getting back to more acceptable mortgage rates. We’ve enjoyed low rates for a long time, but they were artificially low. The market is going to be able to absorb most of the increase. Of course nobody wants higher rates; I would like to see very low mortgage rates. But in terms of panic, we’re actually getting back to a more reasonable number. A lot of people will remember rates of 9 or 10 percent. We’re not going back there. We will have mortgage rates below 5 percent, which is a very favorable environment, for some time to come. But, you know, as a homebuilder, I would say now would be a good time to buy a house before they go up again. If you want to protect yourself, buy today.



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