Interesting Real Estate News This Week

It’s the Economy Stupid!

At least that’s the gist of an article this week at MSNBC.com. The article is titled “Economy, not market turmoil, hurts housing.”

The article correctly points out that as long as the economy is limping along, it’s likely that interest rates will remain very low. These low rates and the high inventory of bargain-priced homes should be lifting demand…but it’s not happening.

When S&P downgraded U.S. Treasury debt ratings, it was widely predicted that interest rates would rise, as lower grade securities demand higher interest rates for greater risk. However, just the opposite happened, and investors fled to Treasuries, still considered the safest investments in troubled times. The stock market took a dive, and people bought Treasury debt, which drove down interest rates to 30 year lows.

So, with a number of factors all coming together to make buying a home a seemingly slam-dunk decision, why aren’t people doing so?

- Prices are really low for homes, with the affordability index showing that many can afford to buy.

- Rent vs. Buy Indexes show that it’s cheaper to buy than to rent in 74% of the cities in the country.

- Interest rates are at levels not seen in 30 years.

This looks like a combination of factors that would create the “perfect storm” of home buying. But, there’s no storm, not even a light rain. Thus we’re back to the statement that “it’s the economy stupid.”

- People fear the loss of their jobs.

- Income levels are fairly stagnant, and people are trying to pay down debt and save, not buy, so consumer spending is down.

- Credit scores are averaged at levels that do not support getting a mortgage at all with current extremely tight lending restrictions.

- Even those with great credit and a down payment are fearful that home prices will drop more, and they don’t want to buy negative equity.

So, no matter how alluring the home prices and mortgage interest rates, other economic factors are depressing the housing market. Until they’re addressed and things get better, don’t expect an influx of home buyers into the market.