Low mortgage rates fail to overcome buyer reluctance

[Crewleader]

September 18, 2014

Irvine Renter 17 Astute Observations

Mortgage interest rates are lower than last year, but sales volumes are also lower than last year as low rates fail to entice additional homebuyer demand.



I would like to own a Lexus LS 460. It’s a beautiful and luxurious automobile; however, I am reluctant to buy one because the price is just too high. They could lower the interest rate to zero, and I would be unlikely to buy a car that costs that much. No matter how much people may want something, if the price is too high, they will be reluctant to buy it.

Most Americans want to own a house; study after study shows that. However, Americans aren’t willing to overpay for a house and risk losing their equity and submerge beneath their debts, particularly since they know house prices can go down. This buyer reluctance is reducing demand.

Real estate demand has two components: purchasing power, and total number of qualified buyers. Low mortgage rates increases the buying power of the majority who use financing, so low rates tend to make prices rise; however, low rates do nothing to increase the size of the buyer pool to improve sales volumes. Our current economic environment, the weak job and wage growth hobbles housing; thus transaction volumes are very low, despite low mortgage rates.

Further, low rates are not likely to stimulate more demand due to buyer reluctance at higher prices. Potential buyers saw prices plummet for five years then rise rapidly for two years. The market looks anything but stable, and with the pain they witnessed many of their peers and parents get trapped in houses and struggle with large payments. It’s a natural and prudent reaction to be cautious about repeating the mistakes they just witnessed. It’s one of the many reasons buyers are boycotting the market right now.

Source: http://ochousingnews.com/blog/low-mortgage-rates-fail-overcome-buyer-reluctance/#ixzz3DieQPAKn