On June 24, average 30-year fixed mortgage rates dipped to an all-time record low of 4.69 percent. It was reported that some brokers were quoting rates as low as 4.25 percent for well-qualified borrowers in parts of the country.
But if anyone is expecting a flurry of home buying activity, they aren’t fully appreciating the realities of the modern consumer. Home sales have fallen nationwide since federal tax incentives expired in April and lending activity is slow, even as mortgage rates hover below 5 percent.
Battered by the economic downturn, the modern consumer is wary, financially limited and restricted by tighter credit regulations. Low interest rates are nice, in theory, but in reality, a lot of folks simply aren’t ready to take on new debt.
Nevertheless, some mortgage brokers are surprised that more people aren’t capitalizing on the low rates, especially when combined with reduced house prices.
“It is a little bit puzzling that there isn’t more of a rush to take advantage of it,” said Dave Christensen, owner of Mountain Lake Mortgage and president of the Montana Association of Mortgage Brokers.
Christensen said that “some people think that (home) prices are going to continue to decline, so they’re waiting six months or so,” but he feels they could be missing out.
“I’m a believer that when there’s a great opportunity with two very unusual things – historically low rates and drastically reduced prices – why not take advantage of it?” Christensen said. “Do it while it’s there instead of waiting for the future for something that might not be there.”
When mortgage rates dipped last year, refinancing activity picked up substantially. Many consumers looking to refinance may have already done so during that period of low rates, helping to explain the minimal refinancing activity with the current low rates.
Furthermore, Christensen doesn’t think as many homeowners – and potential homebuyers – know about the low rates as last year.
“It doesn’t seem like there’s as much awareness of the low levels as there was a year-and-a half ago,” he said. “Then, there was a big swell of refinances and a lot of publicity.”
Both existing and new home sales dipped in May after federal tax credit incentives expired in April. To receive an incentive, worth as much as $8,000 for first-time buyers, purchasers had to have signed contracts by the end of April. Finalized deals must be completed by the end of this month.
According to a U.S. Commerce Department report released on June 23, sales of new single-family homes dropped 32.7 percent in May from the previous month. Existing home sales, which represent a far larger share of the market, fell by 2.2 percent, according to a recent National Association of Realtors (NAR) report. But sales were still up 19.2 percent from the previous May.
According to figures from Kelley Appraisal in Kalispell, there were 104 residential sales in Flathead County in May, up from 101 in April. This statistic supports the local Realtors’ mantra that Montana often bucks national trends.
Through May, there were 416 residential sales in Flathead County, compared to 231 during the same time last year and 394 the year before, according to Kelley Appraisal. In 2007, there were 544 sales through May and 654 the year before.
Nationwide, mortgage applications are down. According to a report by the Mortgage Bankers Association, refinance activity for the week ending on June 18 decreased by 7.3 percent from the previous week and home loan applications fell 1.2 percent.
In the Flathead Valley, Gary Madison, senior vice president of Valley Bank, said he isn’t seeing loan activity in either the residential or commercial sectors, even though “there’s money to loan, no doubt about that.”
“Consumers are still holding off,” he said. “They’re afraid for their jobs and they’re looking to save cash.”
He added: “We have to see cash. It’s not collateral based anymore; it’s cash flow, cash flow.”
Christensen said a potential bright spot on the horizon is increased funding for the U.S. Department of Agriculture Rural Development Program. The program has long provided no-down-payment home loan packages for people in rural areas, though many qualifying consumers aren’t aware of it, Christensen said.
But as other financing options faded with the credit crunch, Christensen said awareness – and subsequently demand – grew for the program, leading to allocated funding drying up in May. The department then made more money available for the program and Christensen said Congress is considering a bill to implement additional funding.
Even though the outlook for the bill in Congress is good, Christensen said, nothing is certain and the current funds are limited.
“Time is definitely of the essence right now (for USDA loans),” he said. “Now’s the time to get it; the sooner the better.”
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