Low rates ... but can you buy?

Mortgage rates that are reaching historic lows could be good for qualifying, and unencumbered, first-time homebuyers.

But if you're seeking to buy another home, then it may not matter what the rate is if you cannot sell your current home. Most buyers need that sale for the down payment for the new home, experts say.

The high rate of foreclosures and short sales, high unemployment and the Federal Reserve's intervention have all created a unique mortgage environment. Whether that will translate into more sales here or nationwide is debatable, according to those following the housing market most closely.

"I would like to see the rate continue to drop to encourage more mortgage restructuring and purchases," said Diane Swonk, chief economist with Chicago-based Mesirow Financial, with offices in Oakbrook Terrace and Bannockburn. "Unlike previous cycles, however, it is not the level of mortgage rates as much as the ability to close on mortgage applications. Appraisals are particularly tough to justify on foreclosures, which is stopping some sales from getting done.

"The bottom line is that low mortgage rates are good news, just not as easy to turn into real transactions as they once were."

Last Thursday, the national average for a 30-year fixed rate mortgage dropped to 4.89 percent, from 4.94 percent. That's the lowest since May, when it was 4.81 percent. Also, the 15-year fixed rate mortgages dropped to 4.32 percent from 4.34 percent. This is the lowest 15-year fixed rate ever recorded in a survey, according to the Mortgage Bankers Association in Washington, D.C.

At Chicago-area lenders, rates ranged from 4.37 percent to 5.5 percent on Tuesday, according to Bankrate.com.

Yet the volume of mortgage requests nationwide fell slightly to 12,696, including 52.4 percent for refinancing, 45.6 percent for purchase loans, and 2 percent of home equity loans for the week ending Oct. 11. Requests totaled 13,081 the week before, according to data released Tuesday by Zillow.com.

With lower mortgages rates, and the first-time homebuyer stimulus money of up to $8,000, real estate professionals had been hoping to see more movement. While that's still possible, other economic factors like high unemployment - about 10 percent nationwide and in Illinois - and have been playing key roles on whether those lower rates even make a difference.

"In a normal economic environment, this would really help housing, but with the unemployment rate where it is, people either can't buy because they are unemployed or the folks that have jobs are afraid of the possibility of becoming unemployed," said Chris Barnes, a mortgage adviser with Biltmore Financial Bancorp Inc. in Palatine and South Barrington. "There are lots of people playing it safe right now. We are doing some purchase money mortgages but not as much as you would see if the unemployment rate were 3 (percentage points) or 4 (points) lower."

Barnes also doesn't expect mortgage rates to go much lower. Rates could even "zigzag," said Jim Boutwell, mortgage loan officer with Alliant Credit Union in Chicago, Des Plaines and Mount Prospect.

"No one knows, for sure, where rates are going," Boutwell said. "My humble opinion is that there is a greater possibility of rates heading up than going down further. I'm guessing we'll see rates zig and zag in a narrow range throughout the winter and creep up in the spring. Economic indicators are always cyclical."

The Mortgage Bankers Association also sees the rate trending upward, said Michael Fratantoni, the association's vice president of single family research.

"We expect rates to go up to about 5.5 percent by the end of 2010," he said.

Conventional mortgage rates are at a cyclical low because the 10-year Treasury yield is low, said Jack Ablin, chief investment officer for Harris Bank in Chicago.

"Mortgage rates are likely to stay low this fall and winter," Ablin said. "They will eventually rise as the Treasury rate responds to stronger economic activity and a weaker dollar. I would expect to see higher mortgage rates during the spring selling season next year."

However, lower rates are meaningless to homeowners seeking to sell and then repurchase, especially since they're dependent on the sale to get the down payment for another new home, said Marve Stockert, executive director of Lombard-based Illinois Association of Mortgage Professionals.

"I don't care how low it goes," Stockert said. "If they can't sell, they don't have the down payment to go into another home."

Many of these homeowners also are subject to appraisals based on nearby foreclosures or short sales, which automatically lower the value of their home. That gives them less for a down payment on another home.

"We're kind of in a cycle that we can't get out of," Stockert said. "As long as the appraisers use those sales as the only sales in a neighborhood, then that's what's going to happen."

But whether the mortgage rates continue to drop or suddenly spike up tomorrow, it's anybody's guess, Stockert said.

"They can bet on it (like) playing the lottery," Stockert said. "It's always a moving target."

Rates: Mortgages expected to stay cheap into next year