Banner Graphic, Volume 10, Number 209, Greencastle, Putnam County, 7 May 1980 — Page 5

But housing recovery will be slow

Mortgage rates to 12 or 14%

WASHINGTON (AP) - The developing recession will push mortgage rates down to between 12 percent and 14 percent by the end of the year, but the slump-ridden housing industry faces a slow and agonizing recovery, economists predict. Many potential homebuyers will be unable to take advantage of the lower rates because of rising joblessness and reduced work weeks, the econortkists said Tuesday. " Moreover, many people have gone through their savings and borrowed too heavily to buy a home now, they said. The panel of economists adtfressed a conference sponsored

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by the National Association of Homebuilders. The recent sharp decline in short-term interest rates has led to a slight erosion in mortgage rates from 17 percent to 15 percent and 16 percent, housing experts report. However, Jay Janis, chairman of the Federal Home Loan Bank Board, warned that there will be no “effective demand” for housing until mortgage rates fall below 14 percent, and that should not occur until late in 1980. Other economists said lenders are only “nibbling away” at record-high mortgage rates, experimenting to see if home-

buyers will return to the paralyzed housing market at still relatively high rates. “Even if mortgage rates decline substantially, we face a very slow, agonizing recovery in housing,” said Leonard Santow, a consultant for the J. Henry Schroder Banking Corp. “The consumer is substantially overextended,” said Santow. “There is very little savings to draw on” to enter the housing market immediately, he added. J. Jeffrey Green, of Wharton Econometric Forecasting Associates, noted that people’s disposable incomes already undercut by rising income taxes,

energy costs and inflation will suffer another blow from a scheduled sls billion increase in Social Security taxes in fiscal 1981. “That large increase comes precisely at the (predicted) trough of the recession,” he said. Other economists, including Kenneth Thygerson of the U S. League of Savings Associations, and Peter Treadway of the Federal National Mortgage Association, agreed with Santow’s analysis. They also noted that the federal government will have to borrow heavily in coming mon-

ths to cope with the recession, and this could keep interest rates from falling as much as they otherwise would. All the economists predicted that housing starts this year will fall between 950,000 and 1.05 million units, about 1 million less than only 2 years ago and half of what is needed to meet the demand. Next year, starts should average between 1.2 million and 1.6 million, the economists told the conference audience, with 1982 representing a healthy recovery from the current slump, they agreed.

Hindenburg tragedy recalled

LAKEHURST, N.J. (AP) - Against a Pine Barrens sunset, radio reporter Herb Morrison described the arrival of the great German zeppelin Hindenburg 43 years ago Tuesday. His listeners, and the world, will never forget it. “The back motors of the ship are just holding it just enough to keep it from ... It burst into flames! It burst into flames and it’s falling! It’s crashing!... “Get that, Charlie! Get that, Charlie! It’s falling and it’s crashing! Terrible! Oh my, get out of the way, please. It’s burning, bursting into flame and it’s falling onto the mooring mast. ... Oooh, it’s falling and flames are 400 or 500 feet into the 5ky....” Moments later, sobbing into his microphone, Morrison said: “It’s a terrific crash, ladies and gentlemen.... Oh, the humanity.” Morrison and radio engineer Charlie Nehlsen, working for Chicago’s WLS, stood only yards away at the Lakehurst Naval Air Station as the graceful 804-foot zeppelin sud-

May 7,1980, The Putnam County Banner Graphic

denly exploded and crashed 200 feet to the damp sand, incinerating 35 of the airship’s 97 passengers and crew. One American sailor below also died. The destruction of the Hindenburg, the technological pride of Hitler’s Germany, signaled the end of lighter-than-air travel that had excited the world between the world wars. Morrison, 75, now lives in semi-retirement in Cheat Lake, W.Va. “They had dropped lines out of the nose and the ground crew had just taken the ropes Then, there was this terrific burst of flames and ex - plosion and it spun around like a pinwheel onthe back end,” Morrison recalled. Nehlsen “kept the equipment running and I kept on describing it. It burned in 34 seconds,” Morrison said. “I saw things falling down, but I thought it was cargo. Later, of course, we learned the passengers had started jumping We thought all the 97 on board had burned.”

Drop in money market rates one of sharpest ever

c. 1980 N.Y. Times NEW YORK - Consumers will receive a 9M> percent interest rate this week on SIO,OOO six-month money market certificates, sharply below the 15.7 percent paid only seven weeks ago. The drop is a result of one of the most extraordinarily swift declines in interest rates on record. The drop was also reflected by reductions in the prime rate, the interest banks charge their most creditworthy corporate customers. The Morgan Guaranty Trust Co., the nation’s fifth-largest bank, cut its rate to 17)4 percent from percent and some other banks dropped their rates again, resulting in a three-tier prime rate of 18*4, 18 and 17»4 percent. The large decline in the money market certificate rate, which is linked directly to the rate on six-month Treasury bills as determined at each Monday’s auction, resulted chiefly from the money market’s radical change in the perception of the economy, now thought to be headed into a recession that might become severe. As the key money market certificate rate fell, savings bankers were reassured, because they reasoned that their earnings would not be under such great pressure. Some but not all predicted that the lower rate would soon mean lower mortgage rates for home buyers. Monday, the Treasury auctioned $3.5 billion of six-month bills at an average rate of 9.495 percent, down from 10.79 percent one week ago and the lowest rate since Aug. 13, 1979. This interest rate has been dropping sharply ever since it reached its high of 15.7 percent on March 24. Banks may sell six-month certificates in minimum amounts of SIO,OOO, at a rate the same as the six-month Treasury bill rate, for one week beginning on Thursdays. “It’s a very welcome development,” said Jerry Pohlman, chief economist at the $6 billion California Federal Savings and Loan Association in Los Angeles, fourth largest in the country. Mortgage rates, Pohlman predicted, will come down fairly quickly, although he cautioned that their decline

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would probably be moderate. Savings associations now charging 17*4 percent might eventually lower mortgage rates to a 14 percent to 15 percent range, he said. Elmer Harmon, executive vice president and treasurer of the Bowery Savings Bank in New York City, the nation’s largest, called the decline in rate “certainly something savings banks have been waiting for,” but he held out little hope for a quick change in the New York mortgage market. The lower certificate rate, he said, would have no impact on the mortgage rate immediately. “It’s a step along that road, but I wouldn’t expe<3 money to be available infmediately in the New York market.” * f j Pohlman said that consumed who hold maturing money market certificates were likely to begin to shift their savings into longer maturities to najl down higher interest rates tha.t were still available. He reported a pronounced shift into 30month savings certificates la§J week. The rate on the 30-month certificates, which is set monthly, is lO 3 * percent for May, down from 12 percent in April. Other bankers predicted that many savers would simply accede to the lower rates and “rolV over” their money market certificates into new lower-yielding ones. Still others were concerned that there might be a trend out of money market certificates into money market, mutual funds, a competitive type of investment that generally continues to post higher rates. “I’m not sure what deposit; flows will do,” George Hance. chief economist at the National Association of Mutual Savings Banks, remarked Monday afternoon. “It’s a new experience to see such an enormous drop in rates. It’s premature to be too certain how depositors will react.” Savings bankers and savings and loan executives, while pleased with the decline in rate, really are hoping that it will drop below 9 percent. Below that rate, they may pay as much as a quarter point more than commercial banks on sixmonth certificates, and the differential gives them a competitive advantage to attract funds.

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