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Real estate record and builders' guide: v. 17, no. 429: June 3, 1876

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Real Estate Record AND BUILDERS' GUIDE. Vol. XVII. NEW YORK, SATURDAY, JimE 3, 1876. No. 429. Published Weekly by THE REAL ESTATE RECORD ASSOCIATION C. W. SWEET...............Pbesident and Tbeasubeb PRESTON 1. SWEET...........Secbetaet. L. ISRAELS.....................----Business Managee TERMS. OJTE TEAR, ill ad vance.... $10 00. Communications ahould be addressed to Nos. 345 AKD 847 Bboadway. SIX PER CENT. MORTGAGE LOANS. The reduction of the rate of interest on mort¬ gage loans from 7 per cent, to 6 per cent, is the interesting and salient feature of the real estate market during the present season, and it is the first time in twelve years that this lower rate has prevailed for any considerable period, Iu 1864:, when the gold premium reached 290, capitalists shrank from embarking in ordinary investments and sought refuge in the security aflEbrded by real estate loans. Eeal estate, not having felt the effect of the general inflation, was still held at such low values that the security afforded by a 50 per cent, mortgage was ample for the protection of capital. The great rise which subsequently took place in landed prop¬ erty increased the risk on mortgage loans, and the rate consequently advanced to 7 per cent., and in many cases a large bonus in the way of commissions and extra rates was paid for the use of money; loaned on property. At the pres¬ ent time a great glut of money is again seeking safe employment, aaid, in order to obtain the best security that eau be afforded by real estate, lenders are obliged to offer their money at 6 per cent., and in some instances as low as 5 per cent. An examination of the mortgage records shows that a large proportion of the loans made during the past three months has been at six per cent., the best being placed at this rate, while those at seven per cent, indicate a much greater risk in placing money. Upon inquiry at the ofaces of the principal brokers, we also find that there is a large amount of capital offering at the lower rate. In fact, an appUcation now made at seven per cent, is looked upon with suspicion, and indicates that a proportion as large as sixty or seventy percent., and in some cases eighty per cent, of the present market value is sought to b#pro- cured by way of mortgage. At present what are called first-class "gilt edge" mortgage loans are eagerly sought after at the rate of six'per cent., a phenomenon of the money market which suggests iasfenietive comment. Wonder has been expressed by the daily press that money has not been heretofore offured at this rate on real estate loans. The reason simply is, that the decline in real estate h^s been so slow, and until lately has been so stubbornly resisted by various causes, which have been stated from time to time in The Beoobd, that at no time since the panic has a loan on real estate been unaccompanied with the risk of having to take the property under foreclosure. Cap¬ italists, therefore, have withheld their money from such investments, preferring to wait until prices had settled down to a "bed-rock" and "hard-pan" basis, before putting out their money for so long a term as is usually covered by a mortgage engagement. The high prices of govenmient stocks and other invest¬ ment securities, and the low rate prevailing in trust companies and upon "call" lo.ins in Wall street, have at length induced our capitalists to look elsewhere for the employment of their funds, and they naturally turn to real estate securities. The unsettled state of the market for a long time made the problem of values a very difficult one; but as these became settled by foreclosure suits, and by the process of depreciation and disintegration that is now going on, the capitalist has found in the real estate market of New York the broadest field as well as the most secure resting-place for his surplus funds. Capitalisis who are jirepared to lend money on real estate inspect the risks very nar¬ rowly. Vacant lots are entirely ignored as a basis for loans, improved property of undoubted character with reliable income being principally sought after for these six per cent, loans. For the time being, the effect of six per cent, loans must be a depressing one upon the real estate market, for this very reason that these invest¬ ors gauge values even more closely than do more liberal and enterprising capitalists who seek to invest their money by purchase, being de¬ termined to place their funds only in such se¬ curities as will withstand aU future panics and all further depreciation of values. Those who buy for cash do so only at a low figure; those, however, who loan their money are not contented even with these low valua¬ tions, but desire still lower estimates, in order to insure themselves unmistakably against loss. Instead of these six per cent, loans being acci¬ dental or exceptional, we are led to believe, from our knowledge of the real estate market, that this rate will be established for some time to come; and we are confirmed in this view by the willingness of capitalists to make engagements for a period of five years at this rate of interest. It is a fact that has been well known in real estate, circles for many months that our leading moneyed institutions have been prepared to lend money at seven per cent., the institutions bear¬ ing aU the expenses of the loans, such as law¬ yers' fees, commissions and searches. This is ia. concession to the borrower that has never before been made in this market. These institutions being exempt by law from all -taxes upon mort¬ gages,, are better able to lend money at mo^eKite rates than private individuals, who dread the as¬ sessment of taxation upon their personal securi¬ ties. The bugbear of personal taxes, while it de¬ ters many capitalists fi:om investing in mort¬ gages even at seven per cent., is in point of fact only a figment of the imagination, because it is thoroughly understood by the well-informed that many capitalists by various devices escape taxa¬ tion on their personal property altogether. Of those who pay taxes on personal estate it is safe to say that none are assessed for more than one- tenth of the amount of iiersonal securities which they h»ld, so that really this matter of taxes upon mortgages is a mere sham. With the pleth¬ ora and cheapness of money many individual capitalists, who have heretofore withheld their funds from investment in real estate mortgages, wiU be induced to embark in such loans. The first-class productive property of this city has borne the brunt of the present panic in a manner that is unequaled except by Government securities and a few railroad stocks. We hail the advent of six per cent, loans as betokening an ease in the r,eal estate market which may, sooner or later, lead to increased activity and widespread building enterprises. The excessive amount of interest charges and expenses upoil mortgage loans which have heretofore been borne by real estate owners are unprecedented in any class of financial securities, and have placed them on a par with the wildest schemes of railroading and mining enterprise. These ex¬ cessive charges could only be justified by the acknowledged risk which lenders heretofore have been obliged to sustain in making their in¬ vestments, and these risks have been fully demonstrated in the disastrous course of prices which has characterized the real estate market for the last two years. It is safe to say that any mortgage made within the past five years on unproductive property in this city has been tantamount to the purchase of the fee. Lend, ers have been engaged during the past two years—^by foreclosure suits—in taking title to property on which they had made what they deemed to be but temporary loans. This course has imposed heavy burdens upon capitalists, who had little thought of becoming owners of land, and has tied np a large amount of available funds which were intended to be loaned simply on mortgage at interest. The process of foreclosure having weeded out I a great many weak holders of property, '■ this same property will be brought into the market now for fresh loans on a new plane of values, and on this new basis will be eagerly sought for by the owners of capital for mortgage investments. The mortgage loan is recognized in courts and in aU systems of finance as the highest order of security. The questioii of val„ nation being the only risk, when this is well set¬ tled and established on a reliable and firm basis the security becomes of the highest order, and a loan made under such circumstances entitles \ it to the benefit of the lowest rate of interest.