Daily Pulse

30-year mortgage rate falls again. Good news or bad?

Paddy Hirsch Sep 15, 2011

Freddie Mac announced today that the 30-year mortgage rate has fallen to its lowest level since 1951. It’s at 4.09 percent now, which should be great news for all the people lining up to borrow at cheap rates to buy a house.

Except that line doesn’t exist. This mixed message kept The Marketplace Pulse steady for the day.

Hardly anyone wants to buy a house right now. The AP reports sales of new homes are on pace for the worst year on records dating back a half-century. The pace of re-sales is shaping up to be the worst in 14 years.

Why don’t Americans want to buy houses? Some are broke, others are scared of losing their jobs, and most everyone is completely uncertain about the future. That has crushed demand for houses and for the loans that buy them. So houses are cheaper and loans are cheaper too.

But good luck if you want to get that rock-bottom rate to buy that dirt-cheap house. Banks are holding on tight to their money, and they’re only lending at the low rate to people who are really safe bets, who have great scores and can put 20 percent down. And who’s a safe bet in this economy? Who can put 20 percent down? Almost no one.

You can’t put all the blame on the banks. They’ve been handcuffed by schizophrenic leadership, which babbles on in public about getting the banks to lend more, and then turns around and regulates and penalizes the very same banks for not holding enough money in reserve. It’s a bit like the kid whose parents tell him to go to the party and then punish him for drinking. No wonder he wants to stay home and play video games!

Unfortunately the upshot of this squeeze is that it makes the rich richer. Because it’s the rich that are the only people able to get those low rates, which puts them in a great position to load up on cheap assets, whether they be shares or apartment buildings. Then they’ll flip those assets for a tidy profit when the market recovers in a decade or so. And get even richer.

So, cheap 30-year mortgages – good or bad? Bad, imho.

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