SECONDARY MARKET PRICES AND YIELDS AND INTEREST RATES FOR HOME LOANS

December 1, 1997

The U.S. Department of Housing and Urban Development (HUD) today released the results of its latest survey of market conditions for fixed rate, long-term, level payment home loans as well as interest rates for home construction funds. The December 1, 1997, survey found that the most frequently quoted contract rate for HUD/FHA Section 203(b) mortgages being sold in the secondary market for immediate delivery was 7.50 percent. Typical prices for 7.50 percent contract interest rate loans produced a national average secondary market yield of 7.51 percent.

The findings are obtained from a survey of home loan market conditions conducted by officials in 70 HUD Field Offices. Information is obtained from over 240 lending institutions and builders located in major metropolitan areas across the country.

FHA secondary market yields had little change in most regions. Changes in secondary market yields on the most frequently quoted Section 203(b) contract rate ranged from an increase of 2 basis points in the Middle Atlantic region to a decrease of 2 basis points in the Southwest region.

In the FHA primary mortgage market, the average FHA effective rate for all reported primary market quotes was 7.53 percent. Lenders reported that the most frequent rate being quoted to potential FHA homebuyers for 60 days or more "lock-in" commitments was 7.50 percent with an average of 18 basis points and an effective interest rate of 7.52 percent. Average points for the 7.50 percent primary rate were , 1.38 points in the Northeast, 60 basis points in the Middle Atlantic, zero basis points in the Southeast, 25 basis points in the North Central, zero basis points in the Southwest, and 5 basis points in the West.

The national average contract rates for commitments on conventional loans for new and existing homes in the primary mortgage market went down 10 basis points to 7.38 percent in new home loans, and down 9 basis points to 7.39 in existing home loans.

The proportion of HUD offices reporting an adequate supply of construction funds on December 1, was 100 percent for FHA and 100 percent for conventional financings.

For the trend of builders' plans, the percentage of builders planning to expand construction activity for all prices homes was 20 percent on December 1, up 8 percent from one year ago. In the latest survey, the majority of builders remained in the stable building plan category for each home price class. The proportion on December 1, was 78 percent for low-priced homes, 72 percent for moderate-priced homes, 72 percent for high-priced homes, and 77 percent for all homes.

On December 1, the proportion of HUD Field Offices reporting a stable trend in builders' unsold inventory of new homes was 81 percent, while 12 percent noted a declining trend and 7 percent an advancing situation. An advancing trend is indicative of a growing inventory of homes, meaning either over-production and/or slower new home sales. Conversely, a declining inventory of new homes indicates somewhat of a sellers' market, where demand would be relatively stronger than supply. One year ago the proportion of offices reporting a stationary trend was 89 percent, a declining trend 7 percent, and an advancing trend 4 percent.

Date of next release: January 23, 1998