Low Mortgage Interest Rates Do Nothing To Stimulate Demand For Homes

Mortgage interest rates hit 50-year lows today. They’re as low as anybody can remember.

This will spur refinancing applications and have the potential to put more money back into the economy to boost demand.

With U.S. unemployment at 9% and lenders raising standards, it is not easy to get a mortgage. Consequently, home purchases fell in July from June.

In an uncertain economic environment where the Dow Jones average may fall 500 points on any given day, even rich people are reluctant to make big purchases, including home buys.

Over the past 200 years, the average yield on a 10-year bond has been 4.7%. Today, the yield went briefly below 2%.

Bloomberg reports:

The decline followed a slide in yields for 10-year Treasury notes, a benchmark for consumer debt including mortgages. The yield touched a record low today of 1.9735 percent, after Morgan Stanley cut its forecast for global growth and concern grew that Europe’s debt crisis may deepen. Lower mortgage rates have done little to boost home demand as the housing market stagnates.
“Low interest rates are helpful at the margins but it’s indicating a lot of concerns about the economy,” said Scott Brown, chief economist for Raymond James & Associates Inc. in St. Petersburg, Florida. “The move into Treasuries is driven by fear.”

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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