Will Lower Mortgage Rates Reverse U.S. Housing Woes? Most Likely . . . NO!

Will Lower Mortgage Rates Reverse U.S. Housing Woes? Most Likely . . . NO!

ONE-HALF POINT DROP IN AVERAGE 30-YEAR RATES SPARKED REFINANCING BUT OTHER ILLS SUGGEST THEY AREN’T A SHORT-TERM FIX FOR HOUSING!

This past week the U.S. Treasury Department announced with great fanfare a plan to purchase $800 Billion of mortgage and consumer debt-backed securities. The action was seen as a way to unfreeze U.S. Credit Markets and spur new home and general consumer spending.

After the plan was announced on Tuesday average mortgage rates on 30-Year Fixed Rate Loans fell nearly 1/2 percent although some of this decrease was given back last Wednesday.

Many experts as well as Wall Street Journal Contributor June Fletcher feel the move will have a negligible impact on the U.S. Housing Market. In many markets across the country including here in Chicago and the Chicago Metro Area house-for-sale inventories remain at near-record highs median prices are tumbling (in excess of 10% in the past year in the City of Chicago alone) and underwriting rules for new mortgage loans increasingly stringent especially for those without top credit scores and low down payments.

Fletcher feels lower average rates would only help if prospective home buyers were "confident in their financial future to take the new-home plunge." However thousands of consumers across the U.S. are increasingly buried in personal debt as well as their own mortgage debt. A rising Unemployment Rate both nationally and across Illinois has them wondering if a major financial investment is wise right now. Many qualified buyers here in Chicago continue to wait on the sidelines waiting for housing prices to fall even further.

Last July 28th Harvard Law Professor Elizabeth Warren that the average middle-class worker has had his financial lot worsen since the beginning of the 21st Century. Adjusted for inflation Warren found the Median U.S. Household Income fell $1175 between 2000 and 2007 while average household expenses climbed $4655. Higher costs for home mortgages gasoline more expensive health insurance and groceries were the primary culprits here in that order.

Families with children added another $3180 in tuition and day care expenses.

How did and do strapped families cope with financial shortfalls?

Many took out and drew extensively on easy-to-obtain Home Equity Lines of Credit as well as untapped high-interest credit against their Master Card and Visa cards. Today nearly 44% of all U.S. Households have a carry-over credit card balance – one which would take on average three full months of household income to retire.

For some of the most desperate home foreclosure and bankruptcy may be the only way out although these options are a true last resort for most. For every family that officially declares bankruptcy there are another 7 who ought to file says Warren. But they don’t refusing to admit to failure financially.

Emergency Relief Measures conceived by the FED including new Loan Modification Programs for certain homeowners may help a few. So will special stimulus programs to encourage mortgage and consumer lending similar to the initiatives taken this past week. More of a universal turnaround however will only happen after the majority of consumers feel confident not only in the U.S. Economy but in their own personal economies as well.

Programs geared to add new jobs is one way if successful this can begin to happen. More affordable home prices the main effect of the current housing downturn will eventually spur purchase interest reduce homes-for-sale inventories and begin to balance the housing market.

Government Mortgage Reforms allowing more family’s – but not ALL families – to upgrade their housing – responsibly – will have an impact.

But it seems that this combination of housing market forces and government intervention will take time to work its way through the system and restore order and growth to the U.S. Housing Market and as a result the U.S. Economy in general.

For more info read June Fletcher’s story in last Friday’s Wall Street Journal.

DEAN MOSS & DEAN’S TEAM CHICAGO