The big news in financial circles lately has been that mortgage rates are down. The big concern in financial circles lately has been that, even though mortgage rates are down, home sales are not rising. Analysts seem to be losing their collective minds trying to figure out why the price drop is not resulting in an uptick in sales.
The average 30-year, fixed-rate mortgage hit 4.14% this week, down from 4.4% two months ago, according to Freddie Mac. But the Times of India reports that the Mortgage Bankers Association says applications for mortgages actually dropped 3.6%.
One thing that we have to keep in mind is that home buyers are real people, not numbers on a page. You can see this when a retailer holds a sale, and nobody comes. Even in Christmas season shopping, the public sometimes stays away in droves. The key is to look at what else is happening in people's lives that might make them hold off on buying, whether that be a television, game console, or a house.
Everybody knows that the "economic downturn" of 2008, which had its specific roots in the housing market, affected the country as a whole. But we also know that the stock market has bounced back and is at its highest level ever. So why aren't people loosening up and buying?
How about not having a job? That will put a serious damper on shelling out hundreds of thousands of dollars for a home.
According to USA Today, new unemployment claims are up again. When the economy tanked, a dramatic shift in employment happened that has never quite recovered, and some experts say never will. Jobs moved from being long-term relationships between employers and employees to temp, freelance, contract affairs. In some fields, these jobs are going and they ain't coming back.
What about housing prices? There are lots of overvalued homes out there still sitting on the market. Some poor schmuck bought his house when it was at its most expensive in those heady pre-2008 days, and now the value has "corrected". But he can't take the loss in a sale for the fair price. No one wants to pay for his mistake.
This factor has given rise to a burgeoning rental industry, with companies stepping in to manage these properties, rental rates going up like mad, and tenants nervous that their home could sell and minute, forcing them to move yet again.
Things may be in recovery, in some senses. But having a sale doesn't mean people are ready to buy.
Image via Realtor.com