The good news is that mortgage rates are down to their all-time low levels; the bad news is that mortgage rates are at their all-time low levels (Low Rates).
With rates down consumers have little incentive to save, if they have any money to save. So they spend whatever they have. That helps put more money back into the economy to make it appear to be recovering. If the economy is stronger, with mortgage rates low, mortgage financing available and housing prices relatively affordable, why aren’t more homes being sold and financed? Because consumers, as a whole, aren’t comfortable that the economy is actually recovering, and the Millennials (18 to 34 set) are a much more cautious lot. They look before they leap at the American Dream.
With rates down, the conversation again goes toward the potential for those with a mortgage to think about refinancing. Not a bad idea if one can reduce their monthly debt obligation without sacrificing too much equity.
But what happens each time a homeowner refinances? They take the money, some of their equity, in the transaction, which makes it a little more difficult to sell that home and move up to the next level. This takes perspective home buyers out of the market resulting in fewer home sales and declining home values. That, in turn, reduces the value of the home that they just refinanced, making it more difficult for them to resell and realize a sufficient gain to invest in a new home. Yes, the home they might buy may be a little cheaper. But, is it worth it to take on any additional monthly debt when you’re not sure about the future of your job, and the economy? Probably not!
For the housing market, and the economy, to fully recover, consumers must be confident in their future and their future earnings power. We had a rude awakening in 2007 & 2008 when we found that home values didn’t automatically continue to appreciate and employment is fragile. This new generation is treading a little more carefully and making informed, responsible decisions. To get things moving again they must be more engaged in the home buying process. The key is how do we get them there? Low rates alone won’t do it.