Lower Mortgage Rates Not Sparking Home Buying

In a typical mortgage market, significant drops in mortgage rates would sweep in home buyers and mortgage refinancing. Not so in this market. In fact, several of the factors contributing to the recent decrease in mortgage rates are depressing home buying too.

Every politician in Washington has low mortgage rates and affordable housing cost on the top of their to-do list. Unfortunately, it seems that the recessing economy is working hard against that goal. A goal that is critical to putting a floor under housing prices and starting a housing recovery.

The average 30-year mortgage has again dropped this week and has consistently been in the 6 percent range for over a month. However, mortgage applications have dropped to an 8 year low. Meanwhile, foreclosures continue to add to the already bulging housing inventories--keeping housing prices in a downward spiral.

This is a trend that is likely to continue as investors continue to flee to the safety of Treasury bonds and government backed mortgage debt--stabilizing mortgage rates.

Lower and more stable rates should entice home buyers and home refinancing. But, there is more going on in the economy that overwhelms any appeal of low mortgage rates. Here are a few big factors working against mortgage financing and home buying:

* Unemployment is rising at record rates, expected to hit a five-year high at 6.3 percent in today's release of October data * Banks continue to dramatically tighten lending standards--Federal Reserve data shows 70 percent of banks raised prime lending standards and 90 percent lifted nontraditional mortgage lending guidelines * FHA programs like Hope for Homeowners is requiring lenders to take enormous loses to refinance existing mortgages and homeowners to come up with 3 percent in cash they don't have * 1 in 5 homes are now "underwater" making all refinancing options nearly impossible and certainly improbable * Even homeowners able to refinance troubled loans are holding out for a potentially better deal being championed by the FDIC and Chair Sheila Bair to perform large scale loan modifications

There are a lot of things working against the home buyer and mortgage refinance customer in this market. The smart borrowers are now doing a lot more research and needing to make more inquires to find a lender that can help them refinance a mortgage or buy a new home.