Housing recovery may be fiction as mortgage rates plummet

As the real estate market has been closely watched, there are numerous indicators to keep an eye on, one of which is overall mortgage rates — the average interest rate charged on a mortgage loan. Though the existing home sales have gone up, mortgage rates have not. One would think this would mean more home loans are due to follow due to more reasonable rates. However, since unemployment is still high, this may mean a longer recovery period.

Source for this article: Housing recovery may be fiction as mortgage rates plummet

Historic lows for mortgage rates

Mortgage rates have fallen to record lows. It was anticipated that mortgage rates would rise once the Federal Reserve stopped purchasing mortgage securities, which it just ceased to do, but they haven't, according to the Wall Street Journal. Instead of rising to the predicted 6 percent, the rate dropped through the month of May to 4.86 percent. Applications for loans to purchase new homes fell to the lowest rate in 13 years by the middle of May. Anyone with an existing mortgage may do well to get mortgage loan modification, as refinancing may put serious cash in their pockets.

Unemployment a deciding factor

The rates may be down at this point, and they are likely to stay that way if demand stays low because of high unemployment rates. According to CNN, the surge in existing home sales was largely due to the first time homebuyers tax credit, and since it has just expired a drop in demand is starting to follow. The above mentioned Wall Street Journal article mentions that anyone looking to refinance should do so now.

The future for housing

It would seem that the sales of homes were partially fueled by the tax credit for homebuyers. As demand lowers, so does the scarcity of a commodity and therefore, the price goes down as well. As the job market is more volatile, there is less demand or reason for people to buy new homes, and with the stricter requirements on lending, this makes for a decrease in demand. A far longer road to the housing market recovering to previous levels may take far longer, as the market appears to be stabilizing at a far lower point.

Sources

Wall Street Journal

http://online.wsj.com/article/SB1000142405274870490460457526271380708089... Estate_LeftTopNews

CNN

http://money.cnn.com/2010/05/25/news/economy/housing_recovery_slows.fort...