Mortgage rates are going lower and lower. One would assume that this would help resolve the housing crisis. Yet the Christian Science Monitor reports that it isn’t clear that these declines are having much impact.
Interest rates are affected by U.S. Treasurys. As safe haven investors store cash in these instruments, loan rates are falling.
The Federal Reserve has also been actively trying to reduce mortgage rates by buying up mortgage-backed securities, the Christian Science Monitor reports. Fed officials hope to perk up the U.S. housing market by making homes cheaper to own for would-be buyers and also to put more money in the pocket of homeowners by making their mortgages less expensive.
But, for the most part, declining rates aren’t having this effect.
Reuters reported that demand to buy homes and refinance mortgages slid in the final week of 2011 even as mortgage rates dipped.
Home mortgage applications fell 4.1 percent in the week ended Dec. 30, weighed down by a 9.6 percent drop in purchase loan requests and 2.5 percent decline in refinancing requests, according to seasonally adjusted data from the Mortgage Bankers Association, Reuters reported.
The Christian Science Monitor reported this week fixed mortgage rates for 15- and 30-year loans dropped to record lows.
Rates for a 30-year fixed mortgage fell to 4.18 percent and fixed 15-year mortgage rates fell to 3.4 percent, according to data from Bankrate.com published in the paper.
Though the Fed was hopeful about the positive impact of declining rates, minutes from the December meeting reveal that they are aware of the reality.
“Low mortgage rates appeared to have only modest effects on the rate of mortgage refinancing,” the Fed minutes say, according to the Christian Science Monitor. “Likely because of tight underwriting and low levels of home equity,” it continues.
The Associated Press says many Americans either can't take advantage of the rates or have already done so.
High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many don't want to sink money into a home that they fear could lose value over the next few years, the AP added.
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