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Mortgage rates across the board plummeted to the lowest level in the history of Freddie Mac's weekly rate survey, to 4.15 percent for a 30-year fixed. But the low rates, coupled with low home prices, are unlikely to kick-start a housing market still stuck in the doldrums.
Borrowers with good credit and a large down payment can shop for even lower rates and find deals, but widespread fears about the economy and unemployment are keeping potential buyers at bay. In the meantime, mortgage delinquencies are rising, potentially adding more homes to the glut already on the market.
An improvement in the residential housing market is enough to lift the economy, and since World War II, it's been an instrumental part of relieving nearly every recession except the latest one.
But reluctance among buyers is only half the story in this housing crisis. The other half of the story, of course, is the reluctance among mortgage lenders to originate loans, due to some problems of their own making.
Fannie Mae and Freddie Mac are sparring with banks over the bad loans they originated and then passed on to them, while banks are also struggling with accusations of wrongdoing in their process for foreclosing on properties.
The result of all this is a fear of taking on additional lending risk, which adds to the difficulty for borrowers. Proof that homebuyers are staying away is that, according to Freddie Mac, approximately 70 percent of all home-loan applications in the first half of this year were from those looking to refinance, not purchase, a home.
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"Low rates won’t save us"... especially if you live within your means and have been a saver, rather than living on debt and speculation. Savers have been getting negative returns for over a decade considering interests well below 1% and inflation. If savers were getting any interest, they could spend and improve their homes (i.e., new furnace, roof, windows, siding, insulation, replace appliances).