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Bill Radke: So low interest rates are a drag if you’re a saver. But if you’re a home buyer, well then, you’re ecstatic. Today, mortgage rates fell to the lowest level on record. Again. 4.36 percent for a 30-year fixed. Now, home owners have reacted — refinances are booming.
But home sales? Have barely budged. Think about that: Many economists have said home buying stalled because that $8,000 federal tax credit
for first-time home buyers ran out in April, we lost this big buying incentive. But these low interest rates? Those would save you way more money than an $8,000 tax credit. So why aren’t the rock-bottom rates lighting a home-buying fire?
We asked Marketplace’s Nancy Marshall Genzer to solve the riddle.
Nancy Marshall Genzer: Take today’s low mortgages rates and compare them to where rates were in April. If you bought now, you could eventually save about $27,000 — more than three times the value of the tax credit. But home buyers apparently haven’t been swayed by that math.
And Greg McBride of Bankrate.com says that’s because buyers are impatient. The tax credit was immediate. The long-term savings is not.
Greg McBride: If I say to you, “Nancy, I’ll give you 100 bucks now, or I’ll give you 10 bucks a month for the next 10 months,” which one would you rather have?
I’d take 100 bucks now, of course. The other reason low mortgage rates aren’t as appealing as the tax credit? You’ve have to stay in the same house for 30 years to get the full savings. Most people only own a home for seven years. But there’s another reason people aren’t tempted by the low mortgage rates. They’re spooked by the high unemployment rate.
Anthony Sanders teaches real estate finance at George Mason University.
Anthony Sanders: It’s just not the size of the mortgage payment. It’s whether you’re going to keep your job. That is the big, 800-pound gorilla in the room.
With that big hairy gorilla hanging around, no one’s going bananas over low mortgage rates. But even if you are tempted, it’s not easy to get a loan now.
Chris Mayer teaches real estate at Columbia Business School.
Chris Mayer: Anybody who’s been unemployed probably got behind in some bill at some point in that process, and their credit score got hit and that is going to make it a lot harder for them to get a mortgage.
Plus, banks are demanding higher down payments, also a tall order in a tough economy.
In Washington, I’m Nancy Marshall Genzer for Marketplace.