Are Low Mortgage Rates Stimulating the Housing Market?

Yesterday we posted a story about how the mortgage rates have fallen to historic lows. Along with these lower rates, however, there are some new guidelines that mortgage lenders are enforcing. But are these low mortgage rates enough to stimulate the economy and help it turn around?

According to an article in the Pittsburgh Post-Gazette, there are fewer people submitting mortgage applications these days despite the low rates. As a result, the Feds and other analysts are concerned that the lowered interest rates aren’t going to be enough to “rev up” the economic recovery for quite some time.

Mortgage lenders have experienced a dramatic drop in mortgage applications since the first-time homebuyer tax credit expired a couple months ago. Some respectable sources say that those applications are down nearly half (42 percent) since the tax credit’s expiration date. Another factor that has led to the drop in mortgage applications is the fact that the mortgage regulations have changed recently, making it more difficult to qualify for a home loan. Many potential homebuyers simply assume they will not qualify for a decent interest rate (if they qualify for a mortgage at all) and they simply don’t even try.

Due to the recent jobs market and so many people losing their jobs, fewer people would qualify anyways for a mortgage because of their damaged credit scores. Many workers are earning less than they were a couple years ago which is keeping them from applying for a mortgage loan as well. Others are simply hesitating to get a mortgage due to the uncertainty of their financial situation and the possibility of losing their job in the near future.

According to Michael Sichenzia, the president of Dynamic Consulting Enterprises, the average person is more concerned about paying down their current debt rather than adding to the amount of debt they have. While that is ideal for their individual situation, this choice isn’t doing much for the overall economy.

There is a light in this mortgage darkness, however. Many current homeowners are refinancing their mortgages. Since April, the number of applications for refinance has increased by 97 percent. With all of the bad news in the industry, at least there is something good to be said. Hopefully, something will turn around soon and this economic recovery that everyone keeps talking about will begin to happen.