Record Mortgage Rates
Borrowing costs have fallen to the lowest level on record, with the average rate for a 30-year fixed mortgage dropping to 3.94 percent last week, according to Freddie Mac data going back to 1971. That hasn't translated to increased demand for homebuying as concern grew last month that Europe's debt crisis will trigger a global recession and the Federal Reserve said there are "significant downside risks" to the U.S. economy.
Purchase mortgages likely will tumble 15 percent this year, the Mortgage Bankers Association said in this week's forecast. A month ago, the group predicted an 11 percent decline.
"People are all about deleveraging now," said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. "People don't want to take on more debt by buying a new home. They want the extra cash they'll get from refinancing."
Falling Incomes
The median income for American households fell to $49,445 at the end of 2010, below the level reached in the 1990s, according to government figures. Without a reversal of that trend, most families will never be able to buy homes, Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, said during a panel discussion at the Mortgage Bankers convention.
"The middle-class squeeze is greater than ever," David Axelrod, former senior adviser to President Barack Obama, said at the conference. "Americans are working faster and faster to meet their bills and pay their mortgages."
That drop in home purchases will heighten real estate's drag on the economy, Mark Zandi, chief economist at West Chester, Pennsylvania-based Moody's Analytics Inc., said at the convention. In the first half of the year, U.S. growth slowed to the lowest rate since the recession.
Back To 'Soup'
"This economy broadly is not going to engage until housing is at least moving in the right direction," Zandi said. "Right now, we are very close to going back into the soup."