Smart Borrower Blog

Low Rates May Not Be Enough For Mortgage Market

Jun 20th, 2012 @ 8:43 PM by Amber Nelson

How affordable are U.S. mortgages these days? For many months now, analysts have been saying that the combination of rock-bottom interest rates and low home prices have created a climate of extreme affordability for home buyers.

In the latest report on existing-home sales, the National Association of Realtors beamed about evidences of a housing recovery.

“It is no longer just the investors who are taking advantage of high affordability conditions. A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices,” said NAR chief economist Lawrence Yun. “The general downtrend in both listed and shadow inventory has shifted from a buyers’ market to one that is much more balanced, but in some areas it has become a seller’s market.”

Yet, a new report from mortgage data company Radar Logic found that the term “affordability” may not be mean as much as some analysts seem to think.

“Housing bulls also point to low home prices and low mortgage interest rates and say housing affordability is at a record high, creating the conditions for improvement in housing demand,” the Radar Logic Monthly Housing Market Report said. “However, home prices and interest rates do not tell the whole story about affordability. From the buyer’s perspective, the size of the required down payment and the availability of mortgage debt, particularly ‘affordable’ products such as payment-reducing Option ARMs and non-prime loans, are crucial factors in affordability. Both are currently much less advantageous for buyers than they were during the housing boom. “

That sentiment was echoed by David Blitzer, chairman of Standard & Poor’s home price index committee in an interview.

“Because of new buyers having difficulty getting mortgages and because of the still-large number of foreclosures hitting the market in some parts of the country, it’s hard to say that we’ve turned a corner.”

Radar Logic forecast that the mortgage market will not see true improvement until the nation’s foreclosure inventory is equalized and until outside factors, like high unemployment, are resolved. And even mortgage interest rates at zero will not change that.


About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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