With mortgage rates at 30 year lows, why aren’t buyers making offers?
Mortgage rates remain amazingly low. For the week of Aug. 26, rates fell for the fifth time in six weeks, according to Bankrate.com. We’re still seeing rates, such as 4.59 percent for a 30-year-fixed loan, that are at or near 30-year lows.
At the same time, home prices have dropped dramatically over the past few years. And yet, buyers aren’t making offers. Existing home sales dropped 27.2 percent in July compared to June and 25.5 percent compared to July 2009, says Bankrate.com.
What gives? Why aren’t buyers taking advantage of these amazing mortgage rates and lower home prices?
1. Buyers are anxious
Are we heading toward a double-dip recession? Are we still in the first recession that began in 2008? Or are we in an extremely slow, fragile recovery? Ask 10 different economists and you’ll probably get 10 different answers.
Whatever the reality is, homebuyers are worried. Those who have jobs often fret about losing them—especially if they’ve just bought a new home. And those without jobs are in no position to even consider buying a new home. Plus, many are afraid that home prices will drop further, after they buy.
Wherever there’s fear, there’s often inaction—and a lot of buyers are currently in that ‘deer in the headlights’ phase.
2. Some buyers no longer see real estate as a reliable long-term investment
A recent New York Times headline sums up the sentiment here: “Housing Fades as a Means to Build Wealth, Analysts Say.” According to the Times, many real estate experts are saying that home ownership will “never again yield (financial) rewards like those enjoyed in the second half of the 20th century.” In fact, Zillow’s Stan Humphries was quoted as saying, “There is no iron law that real estate must appreciate,”.
Whether this is true or not is debatable. But the sentiment is real. Some potential homebuyers worry about socking a huge chunk of money into a property that may not appreciate for decades—if at all.
3. Buyers are more mobile today—and less willing to commit
Back in the 70s and 80s, people would work for companies like IBM for 30 years and then retire with a solid pension. They’d live in the same house all those years, too.
Now, they’re more likely to work for a company for two years, maybe even five years, and then move on—sometimes to a different city. And with advances in technology, many people can live wherever they want, regardless of where their company is based.
We’ve become an extremely mobile society—one that likes to keep its options open. Given the economic uncertainties, then, many potential homebuyers don’t want to get locked into a big investment they might have to sell off in a few years at a potential loss. They’d rather stay put or, if forced to move, to rent—which is why the rental market is heating up in many metro areas.
There’s never been a guarantee
Mortgage rates and home prices are likely to stay low for the foreseeable future, in part because of the sluggish economy. So if you’ve got the means and the need to buy property, this is an excellent time to jump in. There’s no guarantee your property will increase in value when it’s time to sell, of course—but that’s always been the case.