Despite Low Rates, Homebuyers Likely to Stay Home

Manic markets at home and fiscal crises overseas sent investors scurrying this week to buy up Treasury debt, a trend that sent yields plummeting to new lows alongside mortgage rates. Also culpable for the rate plunge: a mad dash by homebuyers to refinance and the ""Federal Reserve's"":http://www.federalreserve.gov/ decision to extend low interest rates. Experts say the historically low mortgage and interest rates are nonetheless unlikely to drive homebuyers back to market.

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Rate watchers ""Freddie Mac"":http://www.freddiemac.com/ and ""Bankrate"":http://www.bankrate.com/ churned out data for mortgage rates Thursday, submitting news lows for 30-year and 15-year fixed-rate mortgages. The GSE's ""Primary Mortgage Market Survey"":http://freddiemac.mediaroom.com/index.php?s=12329&item=49081 yielded an average 4.32 percent for the week, several percentage points afield from 4.39 percent last week and 4.44 percent recorded over the same period last year. A weekly national survey from Bankrate offered a 4.46 percent contrast with Freddie's numbers, down from 4.54 percent posted last week but shy of the record 4.42 percent reached over October and November 2010.

The two mortgage giants again disagreed over 15-year loan rates. Bankrate said 3.61 percent, a slip from 3.68 percent upon which 15-year mortgages beached last week. Freddie put the numbers at 3.50 percent, down from 3.54 percent seen last week. Their figures for adjustable-rate mortgages also had a dustup, with the government entity pushing forward 3.13 percent for five-year ARMs, a dip from 3.18 percent last week, and 2.89 percent for one-year ARMs, a fall from 3.53 percent. Bankrate posted 3.45 percent for seven-year ARMs and 3.93 percent for 10-year ARMs.

In a ""statement"":http://phx.corporate-ir.net/phoenix.zhtml?c=61502&p=irol-newsArticle&ID=1595463&highlight, Bankrate downplayed the brouhaha over credit downgrades and debt crises, casting the Fed's interest rates decision as a boon and historically low mortgage rates as a net gain for homeowners who want to refinance.

New lows for mortgage rates open ""the door to refinancing for homeowners that missed the chance last year,"" it read.

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Frank Nothaft, Freddie's VP and chief economist, reached some of the same conclusions.

Along with the Fed's interest rates pledge, ""[r]enewed market concerns about the European debt markets led investors to shift funds into U.S. Treasuries, pushing long-term yields lower,"" he said in a statement. ""Lower mortgage rates will help to maintain the high degree of home-buyer affordability in the market.""

He cited a ""National Association of Realtors"":http://www.realtor.org/ (NAR) ""affordability index"":http://www.realtor.org/wps/wcm/connect/9430aa0047d3993f8e61cf93a9f011da/REL1106A.pdf?MOD=AJPERES&CACHEID=9430aa0047d3993f8e61cf93a9f011da, which valued existing single-family homes at $184,600 on average over June, with qualifying income at $36,960 for households with a median income of $61,537 nationally.

Speaking to _MReport_, Nothaft ascribes the weak turnout among homebuyers in spite of historically low rates to consumer confidence doldrums.

""We've got the most affordable homebuyer market in more than 40 years, and yet homebuyers are not buying,"" he says. ""Even if [homebuyers] have the wherewithal to buy a home, they're staying on the sidelines because they're worried about all the economic uncertainty. A lot of them keep hearing ├â┬ó├óÔÇÜ┬¼├ï┼ôdouble dip, double dip.' What if there is a double dip?""

Asked whether tight underwriting standards are holding back a swell in home purchases, Nothaft argues against a return to policies from before the recession.

""We were way too lenient then, and we as a society are paying for the consequences,"" he says. ""I think returning to the more traditional underwriting quality"" ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô which he describes as sound creditworthiness, capacity to pay, and collateral value ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô ""is probably very good medicine for the market.""

In a past interview, NAR spokesperson Walter Molony argued the underwriting pendulum had swung to excessive risk aversion and faulted strict standards for weak home sales.

""The single biggest problem right now is tight credit,"" he told _MReport_, projecting that existing-home sales would jump 15 percent to 20 percent if only more financial institutions relaxed their underwriting standards. ""Lenders need to get back into the business of lending.""

Whither mortgage rates and the housing economy in lieu of so much market turmoil?

""As long as people are worried about a recession, mortgage rates are going to stay very low,"" chimes Greg McBride, a senior financial analyst for Bankrate. He downplays both the role of mortgage rates and underwriting standards, saying the housing industry will continue trailing off until the economy at large adds more jobs.