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Higher loan costs may alter recovery’s equation



Published: Sun, July 14, 2013 @ 12:00 a.m.

Atlanta Journal-Constitution

Ben Bernanke hints that the Fed might ease its long-running stimulus efforts. Stocks plummet and mortgage rates jump.

Neal Creech just keeps building homes.

“At some point, the economy has to run on its own,” said the founder of 10-year-old Creech Custom Homes in Atlanta. “We’ve got enough steam going now.”

Recent market gyrations and speculation about Fed policy are bringing interest rates back into play as a calculation for both businesses and consumers.

So far, many business owners such as Creech are reacting by not reacting — hoping the economy is strong enough that they won’t have to redraw strategies or rethink growth plans. Some may actually speed up plans to get rates while they’re still low. But there’s also concern higher borrowing costs could slow the recovery.

Housing is one of the sectors most-heavily affected by interest rates. Building and buying are fueled by loans — if money gets tougher to come by or more costly to borrow, the fledgling housing recovery could stall.

Recently, the average 30-year mortgage rate climbed to 4.46 percent, from 3.93 percent a week earlier. Although the average rate moderated to 4.29 percent this week, the upward shift is prompting concern that other rates — such as those for auto loans and business expansion — also might turn up.

Atlanta real-estate agent Mark Takacs said some home shoppers “are kicking themselves for not locking in earlier” but are not abandoning their home searches.

Atlanta broker Zac Pasmanick noted that mortgage rates are still historically inviting even with the uptick.

“I’ve been selling real estate since mortgage rates were 18 percent, so going from 3.5 [percent] to 4.5 percent is no big deal,” he said. “We all knew interest rates were artificially low.” His plans to sell his own home and downsize have not changed, he added. “I could live with 4.5 [percent] or 5 percent.”

Caroline Kelly Simmel, vice president of Edward Andrews Homes, said there’s no panic at her company.

“There’s a long runway before higher interest rates would have a real impact,” Kelly said. “I think it would be a few years before it really starts affecting anything.”

In some regions, the improved housing market this year is due in part to investor-buyers scooping up properties they will rent for a time before reselling.

Atlanta-based Lima One Capital makes loans to those investors. President and founder John Warren said the rates he charges are not rising because the loans are usually short-term, and rates do not parallel regular mortgages.

Still, rising rates generally can affect how much consumers will pay investors for renovated and resold houses.

“As long as mortgage rates stay below 5 percent, people will continue to buy. I’d be skittish if they go higher.”

Josh Moffitt, president of Atlanta-based lender Silverton Mortgage Specialists, said he’s becoming more cautious.

“The worry is how quick the market reacted. A 1-percentage point move in two weeks — that’s the biggest move in four years.”

Silverton had planned to hire another underwriter, he said. “With rates moving up, maybe not. Now we have a job that might not be there.”

More than real estate is affected, of course. All companies need capital, especially if they are not big enough to get respect from the large banks, said Andy McGhee, president of Atlanta-based Alostar Business Credit, which makes loans to firms.

For Alostar, higher rates are good news — company revenues should go up along with rates, he said.

Higher loan rates could change the math for smaller businesses or franchisees trying to expand.

“We have been thinking about building or buying another hotel,” said Rupen Patel of Sandy Springs, Ga., co-owner of a La Quinta Inn and Suites in Panama City, Fla. “But thinking about the rise in interest rates, we looked at the margins and we chose not to do that.”

The specter of expensive borrowing also can spur companies to expand more quickly.

The possibility that the era of rock- bottom rates could be ending also is nudging Bella Bag, an Atlanta company that buys, trades and sells expensive pre-owned handbags.

The company needs credit to keep its inventory at a target of 2,300 handbags, and it plans to open offices in other cities.

“With historically low interest rates, to be honest, it makes us want to accelerate our plan,” said Brian Froehling, chief financial officer.


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