Job fears keep most from historic low mortgage rates

Mortgage rates may be historically low, but whether that translates into helping homebuyers and homeowners is still up for debate.

Some experts see high unemployment, home values under water, high foreclosure rates and other recession-related issues still stalling the real estate market, despite low rates for loans.

A 30-year fixed mortgage rate dropped to 4.69 percent last week, the lowest reportedly in about 40 years. Other mortgage products also were lower, and even if they go lower again this week, some mortgage professionals wonder what impact they're having if sellers can't move their existing home to buy another, or if buyers are unemployed or unable to qualify for a mortgage.

"The lower rates are very positive, but are they having the effect that they should have on the economy? No," said Marve Stockert, executive director of Lombard-based Illinois Association of Mortgage Professionals.

Some experts debated whether those lower rates would translate into more home sales or more refinancing among suburban consumers, considering the first-time homebuyer stimulus credit has ended. An extended federal program or even an entirely new one aren't expected.

Nationwide, applications for refinancing increased 51.6 percent compared to a year ago, but applications for purchase decreased 36.5 percent in the same period, according to Washington, D.C.,-based Mortgage Bankers Association's Weekly Applications Survey.

"In general, a drop in the rates affects the level of refinancing, but not purchases as much," said Mortgage Bankers spokeswoman Carolyn Kemp.

Still, most recent sales have been attributed to the stimulus credit as well as short sales and more foreclosures, Marve Stockert said.

"We're just hamstrung right now," he said.

Another mortgage professional agreed that a lower mortgage rate isn't a magic wand.

"You would think that they would help but that has not been the case so far," said Chris Barnes, mortgage adviser with Biltmore Financial Bancorp Inc. in Palatine and South Barrington. "It might be due to the expiration of the tax credit, though, and the uncertainty of the job market certainly has a bearing on people's mindset."

Many might see the lower rates as an incentive, but it isn't expected to drive up volume.

"So far this year, all business (purchase and refinance) is slightly lower but with the recent drop in rates, I expect the end result is that total loan volume will end up similar to last year," said Barnes.

The number of mortgages so far are off about 20 percent compared to a year ago, Barnes said.

"You might initially think more people are refinancing now, but many people already refinanced last year when rates dropped from the low 6s to the low 5s," Barnes said. "And for most people, going from the low 5s to the high 4s does not make sense once you take into account closing costs."

Still, a quarter of 1 percent change in the interest rate can mean tens of thousands of dollars in costs over a 30-year mortgage. Interest rates, along with home prices, can have a major impact on housing affordability, said Mary B. Schaefer, a spokeswoman for Springfield-based Illinois Association of Realtors.

Forecasts for June, July and August indicate sales increasing in Illinois in the 16 percent to 25 percent range and in Chicago in the 19 percent to 29 percent range on an annual basis. The suburban market has seen recent gains in the last few months due not only to the tax credit, settled home prices but also due to dropping mortgage interest rates which continue to help fuel the market, Schaefer said.

"A lot of strength and growth in the housing market from here on out will be dependent on the labor market," said Schaefer. "People are hesitant to purchase a home if they are concerned about their next paycheck or job security in the next year."

Refinancing will be a smaller percentage of the market.

"Many people have already refinanced under the lower mortgage rates in the past year. While some may see this as a sign to consider refinancing, others may see this as a prime opportunity to purchase the house of their dreams, which may be an existing or new home," Schaefer said.

Rates: Job status driving mortgages now