WSJ: Historically Low Rates Do Not Mean More Buyers

• May 26th 2010

by Mark Wellborn

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It was widely reported last week when mortgage rates dropped to 4.8%, the lowest rate since records started being kept.

The new record sparked hope that buyers would recognize the bargain that they could get buying a home at this rate and hit the home search trail immediately.

So far, that is not happening. According to a Wall Street Journal article, “new (home) purchase applications fell to a 13-year low” last week. And the effect that the new low rate could have on a surge of home buyers hitting the market is less clear.

From the WSJ:

While they’ll allow more borrowers to qualify for loans, and some potential buyers will find they may be able to afford slightly larger loans at lower rates, low interest rates by themselves aren’t a huge demand driver.

“As long as those interest rates stay low, the market will continue to kind of percolate along. But as rates rise, absolutely that takes some ‘oomph’ out of the recovery,” says Christopher Thornberg, a principal at Beacon Economics, a Los Angeles-based research firm. If rates rose to 7%, for example, that could make housing less affordable and send home values down by as much as 20%, he estimates.

While this outlook puts a slight damper on last week’s news, if you can qualify to take advantage of the 4.8% rate (few can, as you have to have an excellent credit score and little to no debt), you would be silly not to. If you bought a $450,000 home and were able to put 20 percent down, your monthly payments at the low rate would be $1,888. Compare that to if you bought back when rates were at 6 percent, and your monthly savings would be almost $170/month.

This article originally published at http://dc.urbanturf.production.logicbrush.com/articles/blog/wsj_historically_low_rates_do_not_mean_more_buyers/2109.