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US housing market slump to last despite rise in opportunists
The lowest mortgage rates in three years are luring first-time buyers and cost-cutting refinancers, but falling home prices and mounting unemployment will keep US housing in its deepest slump since the Great Depression.
- Reuters
- Published: 23:35 December 4, 2008
New York: The lowest mortgage rates in three years are luring first-time buyers and cost-cutting refinancers, but falling home prices and mounting unemployment will keep US housing in its deepest slump since the Great Depression.
Applications to buy and refinance homes hurtled higher last week as the lowest rates since the summer of 2005 unleashed pent-up demand. But the rush of activity does not portend a sustained boon to housing and the economy, analysts said.
"The lower interest rate will help, but that's not the whole story," said Doug Duncan, chief economist at Fannie Mae. "Unemployment is going up and consumers have pulled way back and are trying to build savings, so they're not going to be aggressively in the housing market."
A government plan to sop up hundreds of billions of mortgage securities spurred a bond rally that yanked 30-year home loan rates down half a percentage point to about 5.5 per cent in the Thanksgiving week.
Tightened standards
The 38 per cent leap in applications to buy homes and 203 per cent spike in refinancing loan demand came from the lowest levels in eight years, however, based on data from the Mortgage Bankers Association.
Borrowers whose refi applications are granted by lenders will pare payments or switch out of riskier adjustable-rate loans. Lenders have tightened standards amid record foreclosures.
The purchase side is murkier, analysts and lenders said. The supply of unsold homes is near record highs. Buyers fearing job loss, or betting on even greater bargains, are unlikely to commit now to one of their biggest investments.
US private employers cut 250,000 jobs in November, ADP Employer Services said on Wednesday. The US unemployment rate, due out on today, likely rose to 6.8 per cent in November after setting a 14-year high of 6.5 per cent the prior month, according to a Reuters poll.
"House price declines and interest-rate declines make housing more affordable. But the bottom line problem is not that people need to refinance, we need to sell some houses and reduce inventory," Duncan said.
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