Why Nobody’s Jumping on Record-Low Mortgage Rates

If you’ve been excited by the incredibly low mortgage interest rates we’ve witnessed for the past few months, you’re not alone. Consumers and housing experts alike have been amazed by these rates, which to date are the lowest on record.

However, while everyone is marveling at mortgage rates, no one’s really doing anything to take advantage of them, as evidenced by record-low home sales. So why on Earth is no one jumping on them when they’re going to start climbing again sooner or later?

Mortgage Rates Are Lowest Ever Seen

Back in June, we saw interest rates drop pretty far below 5 percent, which was always considered an amazing rate for a home loan. At the end of June, rates were at 4.75 percent and dropping even further. By July, we saw rates drop even further to what became the lowest seen in 38 years.

The record lows didn’t stop there, wither. By the beginning of August, we saw rates drop to 4.56 percent and as of the first week of September, rates had dropped to the new record low of 4.32 percent.

These rates are undoubtedly exciting to anyone who knows how beneficial they could be for the lucky home buyer able to secure a 30-year, fixed mortgage loan. That’s what makes the fact that not many homeowners are taking advantage of them even more baffling.

Home Sales Reach Record Lows

For a while, we saw an increase in home sales as thousands took advantage of the $8,000 home buyer tax credit. In fact, March saw the new home sales increase at the fastest pace in 47 years with a one-month increase from February of 31 percent.

Unfortunately, this buying streak didn’t last long. Existing home sales from July to August saw a 27-percent drop, making it the biggest one-month drop ever seen in history.

So what happened in just a few short months? Well, most buyers who were even considering a home most likely jumped in to sign for a home mortgage and claim the credit before the April 30 deadline. This is not the only reason, however that in just a few short months, the tables have turned for homebuyers.

Reasons Home Sales Are Low

The home buyer tax credit expiration is just one reason that consumers aren’t taking advantage of fantastic mortgage loan rates that are sure to increase in due time. Here are a few others:

• Lenders aren’t lending: It’s no secret creditors have tightened up their lending practices as a result of their own financial struggles from the recession. Now, many are only dedicated to offering new home loans to those with impressive credit and who are less likely to default. Even homeowners trying to refinance have struggled according to the Mortgage Bankers Association. In mid-August, the MBA reported that though applications were up nearly 20 percent, many homeowners were being rejected.
• Lower credit scores: Another reason that homeowners aren’t buying is because so many more have lower credit scores than in the past. According to Fico Inc., 25 percent of consumers have subprime credit scores (599 or lower), which is a significant increase over 15 percent a decade prior. As a result, many homeowners have decided not to add inquiries to their credit reports for applications that they know won’t be approved.
• No money to spend: While some don’t have subprime credit scores, they may have lost their jobs and simply don’t have the income necessary to pay for a new home. Also, some people with great credit scores and income are fearful of the unstable economy. After watching friends and family members lose jobs, homes, cars and more, they’re not willing to chance taking on another major commitment.

There’s no doubt that times have been tough across for everyone affected by the economy. As a result, some go so far as to doubt that the market will ever recover again.

Can the Housing Market Get Moving Again?

With what seems to be a Catch 22 in the housing market, many wonder if it can get moving in the future. Some say there’s a small chance of recovery–most likely after it struggles a bit more thanks to increasing foreclosures–while others say the housing market won’t recover at all.

With homeowners still suffering from underwater mortgages and home prices not being expected to bounce back until 2014, one thing’s for sure: we have a long way to go.

Getting one family in a home at a time seems to be the goal of the government as it approves HUD and the FHA to supply loans and assistance to those with subprime credit. In order to get the market going, though, so much more will be needed.

So in the end, we may have to watch the exceptionally low home prices and mortgage rates come and go with few people taking advantage of them. All we can do is someday remember the grand time when the best and worst of the housing market somehow occurred almost simultaneously.