What if mortgage interest rates slide even more?

(Reproduced with the permission of Mortgage-X.com.) Click to expand.

Freddie Mac reports that the interest rate for a 30-year fixed-rate mortgage stood at 4.51 percent last week, having fallen from 4.6 percent the prior week.

I cannot remember when the rates were not only so low but also persisted at such a historically low level.  But, as everyone knows, the amount of home sales flies in the face of such tempting rates.

Consider the chart above together with the two below for striking evidence of how strongly potential buyers have been resisting rates that are almost incomprehensibly low.  The trend lines should move in opposite directions–theoretically.

New Home Sales and Recessions via Calculated Risk blog. Click to expand, then scroll.
Existing Home Sales in May via Calculated Risk blog. Click to expand, then scroll.

Before the Great Recession and housing bust–which are, of course, responsible for the startling contradiction between interest rates and home sales–the volume of sales of new homes attained its peak in more than four decades of nearly 1.4 million on an annual basis adjusted for seasonality. Existing homes (resales) topped out just above 7 million.

Today, sales of new homes don’t come close to as much as 400,000 and existing homes, 5 million.

In 2006 and 2007, rates hovered around 6.5 percent, give or take, two points more than today.  For, say, a $400,000 mortgage, the monthly payment at 6.5 percent comes to $2,528; at 4.5 percent, it drops to $2,027.

A borrower today thus would save $500 a month, $6,000 a year.

Yet buyers ain’t buying, even with loans (before tax benefits are factored in) costing so little and so much less than in the past.  Who among us can recall interest rates ever being so low and the U.S. housing market being in such straits?

All of which brings me to the question posed in the headline: In the admittedly unlikely event that rates keep slipping, how would the housing market change?

It is hard to imagine that there would be any impact at all.

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201

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