Mortgage Rates Drop Again, and Nobody Cares

Freddie Mac just released their latest roundup of mortgage rates, for the week ending June 3, 2011. Average rates for the benchmark 30-year fixed mortgage have dropped for seven weeks in a row. But nobody seems to care, aside from the media.

Here are the latest numbers from Freddie Mac’s mortgage market survey:

  • Average rates for a 30-year fixed mortgage dropped from 4.6 to 4.55 percent.
  • The 15-year fixed mortgage saw a rate drop from 3.78 to 3.74 percent.
  • The 5-year ARM loan held steady at 3.41 percent.
  • The 1-year ARM … well, nobody cares about that but investors.

But don’t expect the still-declining rates on fixed mortgages to breathe new life into the housing market. Home buyers have become desensitized to the “falling rates” news stories. Their eyes are focused on another downward trend — home prices.

How low must mortgage rates drop to create a surge in home-buying activity? Apparently, we haven’t hit that magic number yet. And we won’t hit it for the foreseeable future either. With home prices dropping in most major metropolitan areas (and with most economists pushing their recovery predictions into 2012), would-be home buyers have a lot to be nervous about.

Are Qualified Borrowers Too Smart to Buy?

It’s tough to get a mortgage loan these days. You’ve probably heard that phrase an infinite number of times in recent months. That’s because it’s true. People who have bought homes in the past (before 2008) will be shocked at how hard it is to get a mortgage today.

You hear about credit scores all the time, but that’s only one piece of the mortgage puzzle. Lenders also want to see lower debt levels, larger down payments, more documentation, more explanations and, in some cases, the cash-reserve equivalent of two to six months of mortgage payments.

People who can qualify for a home loan today have their financial ducks in a row. They have manged their finances well in the past. They have good credit. They have money saved up. They are financially savvy. So they are smart enough to realize that, in most markets, buying a home is a bad investment right now.

It doesn’t matter how far mortgage rates fall. Qualified borrowers are not waiting for rates to drop again. They’re waiting for home prices to stop dropping. After all, what good is a 4-percent interest rate if you’re upside down in your mortgage loan?

These buyers won’t move forward until they’re convinced their local housing market has hit bottom.

That’s not to say there aren’t a few rays of light here and there. Washington D.C. comes to mind. It was the only metro area that saw a rise in home prices, according to the Case-Shiller price index released last week. The other 19 out of 20 metro markets saw price declines. Further, many economists don’t expect a national housing recovery until 2012 or later.

Low mortgage rates are attractive on paper. But in the grand scheme of things, they are not enough to spur the housing market. The smart buyers are taking a wait-and-see approach.