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Low Mortgage Rates and Slumping Home Sales are Bad for the Economy

By Brett Goldfarb in Mortgage and Lending, Real Estate
July 1st, 2011

Low mortgage rates combined with plummeting home prices have not stimulated the troubled housing market in 2011 and the problem is dragging down the broader economy.

Low Mortgage Rates For many prospective home buyers, the good news is that mortgage rates are still hovering around all-time lows but the bad news is that it’s more difficult for the average home buyer to qualify for a mortgage at these rates.

In the week ending June 30, 2011, 30-year fixed-rate mortgage (FRM) averaged 4.51 percent with an average 0.7 point. The numbers were up from last week when 30-year fixed-rate mortgage (FRM) averaged 4.50 percent. The same time last year, the average for a 30-year FRM was 4.58 percent.

As for the 15-year FRM, this week it averaged 3.69 percent with an average 0.7 point which was the same from last week’s average. The same time last year, the average for a 15-year FRM was 4.04 percent.

Even with these great rates which might otherwise entice people to stop renting and buy a home, the sale of homes is still repressed. Investors buying homes with cash, without taking out a mortgage represent a significantly large percentage of home buyers.

“If banks would simply return to normal sound underwriting standards and begin lending to more creditworthy borrowers, we’d get a much faster recovery in the housing sector,” stated Lawrence Yun, chief economist for the National Association of Realtors (NAR).

Last Week, Federal Reserve Chairman Ben Bernanke stated the housing market is dragging down the broader economy. For the market to recover, he said foreclosures must be cleared from the pipeline of homes for sale.

Most economists say home prices will continue falling through the rest of 2011. Many forecasts don’t anticipate a rebound in Real Estate prices until at least 2013.


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