Interest rates still the key to boom or bust in housing

If you're looking for a house to buy this fall, the best buy may be a used house. The housing upturn that expanded so quickly during the first half of the year now shows signs of stalling out. The big reason, brokers and contractors agree, is the climbing mortgage interest rate. To a lesser extent, spot shortages and upward creeping prices on some building materials also are helping to dampen the boom.

As a result, fewer building permits are being issued and new housing starts are on hold in many areas. This is partly a seasonal trend because fewer houses are built in the winter. But the main brake appears to be tighter money at higher cost.

''We'll be idle after we finish the job we're working on now,'' says a contractor in western Texas. ''I've bid on a condominium project in Colorado, but it depends on the builder getting the money.''

While new construction puts people to work, for hopeful home buyers the bright spot now may be pre-owned homes. Many brokers, in fact, see secondhand houses in good condition as the best buy for the money.

''Our best buys are in pre-owned homes in the $48,000 to $65,000 range, with an average selling price for single-family homes of about $57,000,'' reports David Hickey of Eckert Realty, Belleville, Ill., although in other parts of the country the averages can be much higher.

''We're still seeing a significant number of homes offered for sale, and so far about an equal number of potential buyers,'' says Dennis George of the Reno (Nev.) Board of Realtors.

''The average price for property sold here runs about $90,000.''

For the first half of 1983, the preponderance of home financing in most regions was Federal Housing Administration-backed mortgages in the 12 percent range.

''We were getting 12 percent from local banks with 3 percentage points on a 30-year mortgage,'' declares Thad Cwik of the Thad Cwik agency, Flemington, N.J. ''A buyer could get into a conventional mortgage for as little as 10 percent down. With those terms, we've seen a lot of interest in lots and homesites for new construction.''

Now, with banks charging more points (an initial charge equal to a percentage of the selling price) and interest rates edging higher, 12-percent fixed-rate mortgages are getting harder to find from conventional lenders. Also, more lenders want bigger down payments.

Some states, such as Massachusetts and Missouri, have limited mortgage money at relatively low interest through bond issues or other funding vehicles.

''It helps,'' says Nick Iman, a Century 21 Realtor in Marshall, Mo. ''But one problem with state-funded mortgages is that only first-time buyers can qualify.''

''We've still got some money available that goes for 121/2 to 13 percent, with three or more points,'' notes Rena Mills, a broker with Herman Brown Inc. of Anderson, Ind. ''And with General Motors calling people back to work, we've got a good demand for homes. Still, our best buy right now is a basic house about 15 years old, which sells for an average $40,000 in this area.''

Aside from the fact that buyers in many regions can purchase more housing value in a sound, well-maintained used home than in a brand-new one, there's also the likelihood of finding a seller who is willing to negotiate better terms than do conventional lenders.

''With interest rates high, we see more seller financing,'' agrees Mr. Hickey of Belleville, Ill. ''Often, the owners sell on a contract-for-deed basis, with level payments for 5 to 10 years and a balloon (final lump-sum payment) to be refinanced at the end of that period.''

One problem with owner financing is that sellers do not often make open-end mortgages that allow the buyer to borrow more money later on for repairs or improvements without rewriting the mortgage.

''Whatever the source of financing, it's wise to find out as much as you can about the condition of the house and the cost of any repairs or remodeling needed,'' advises E. J. Merriott, an agent with the Blaine Silvey Agency, Versailles, Mo.

''If you find a homeowner who needs to sell because he's moving out of the area or whatever, he will usually negotiate on terms. Rather than try to beat him down too much on the interest rate, it may be easier to get him to discount his asking price to cover expenses which the buyer will have.''

An owner who needs to sell is more likely to give ground on the repayment period and method as well, Mr. Merriott adds.

''I'd insist on a prepayment provision that would let the buyer pay off the mortgage before maturity without penalties. Depending on the seller's tax situation, he may want a waiting period before the mortgage is paid off entirely , but make this period as short as possible.''

That way, if conventional interest rates drop, the buyer can refinance at a lower rate and pay off the original mortgage in full.

Looking at interest rates, brokers all across the country expect them to moderate before long.

''There's enough housing demand to make the uptrend a long-lasting one if interest rates stay in line,'' according to Mr. George of Reno. ''But mortgage rates need to be at 12 percent or less before many people can afford to buy - new or used.''