Seasonally-adjusted mortgage applications dropped 12.3 percent in the week ending Oct. 23, 2009 from the week prior while refinancing applications dropped 16.2 percent, according to the Mortgage Bankers Association (MBA). These numbers have dropped for several weeks - right alongside mortgage interest rates (30-year fixed mortgages are roughly 5.03 percent). This makes you wonder why the demand for homes is dropping if the interest rates are so attractive.
People Are Afraid
It's pretty evident that people are feeling leery about spending their money, no matter how low mortgage rates fall. This is mainly because companies are still laying people off and others are imposing a hiring freeze. In other words, if you get laid off, you might stay that way for a while. And with the status of unemployment benefit extensions still being debated by the Senate, not many people feel excited about taking on a new mortgage with unstable means.
The Double-Edged Sword
It seems that Americans are living with our backs against one big double-edged sword. On one end, we have low home prices and a sizable tax credit begging for some attention. On the other hand, we have millions of individuals with no jobs and homes in foreclosure. The bad economy has driven people off of their jobs and out of their homes. As a result, home prices have dropped. But who wants to buy homes in such distressed times? Even more, who feels comfortable profiting from a distressed home with former distressed homeowners?
This may mean that until the economy truly starts to turn around (not just in numbers as Bernanke stated about the recession) people will not feel right about taking on a new mortgage. The only question we need to concern ourselves with, however, is will home prices and mortgage rates increase dramatically as the economy improves?
Are you turned on or turned off by the thought of purchasing a new home?
