24/7 Wall St.

Freddie Mac (FRE) reports that mortgage rates are at record lows with 30-year fixed-rate loans down to 4.78%

The drop does not seem to be doing much for the housing market. Recent data released by Case-Schiller shows that home prices in the top 20 US cities are still falling rapidly. The data covers a period that is a month old, but mortgage rates were already well down when the information was collected. There is no reason to think that a very modest drop in mortgage rates since then will send a number of new buyers into the market.

The government’s attempts to drop rates to attract homebuyers is running into a brick wall. People shopping for a house are well aware that the severe depression in real estate values is not over.  Some analysts see average home values dropping another 10% to 15%.

The root cause of the problem is the rise in unemployment. It not only causes increases in defaults and foreclosures as homeowners lose their ability to pay but floods the market with new and distressed inventory. It also takes hundreds of thousands of potential homebuyers and puts them on the sidelines as they look for work.

As long as 600,000 Americans are losing jobs each month, the supply of unsold homes in going to keep growing and the belief among buyers that they can get a better deal next year is not going to go away.

Douglas A. McIntyre