Continued Low Rates and Extension of Homebuyer Credit Do Not Help Housing Market
We are seeing historically low interest rates. But, these are neither (i) causing a new refinance boom or (ii) spurring on the housing market. The lack of substantial refinancings are not for lack of interest by borrowers. Rather, many people would refinance but are unable to due to tighter lending guidelines. While traditionally, the fall-out rate (i.e. loans applied for but not closed) was in the 10-20% range, it is not somewhere between 30-50%. This is the result, mostly, of decreasing home values which cause the appraisals to be too low to refinance. In addition, the combination of decreased employment and income (i.e. salaries) with the higher debt to income standards that lenders are applying, have had a chilling affect on mortgages.
Unfortunately, despite the best intentions of the federal government, little they have done has had an affect on the real estate market or the mortgage industry that supports it. Clearly, home buying is an industry supported by credit. Without credit, there is little home buying. The homebuyer credit which has a marginal affect on lending has now been extended for several months. However, since the Contracts had to be signed by April 30th, this will not have any affect on homebuying as those transactions would have closed regardless of the credit.