Mortgage applications fell almost 25% last week with new loan applications for home purchases hitting an eight-year low, according to the Mortgage Bankers Association. People continue to sit on the sidelines, waiting for prices to drop. Who wants to buy a home today if the price for that home might be lower soon after the deal closes?
Adding to that wait-and-see attitude are some major incentives that could be part of the stimulus package making its way through Congress. The biggest incentive of them all is a Senate provision that would give all home buyers a $15,000 tax credit. Who wouldn't wait to see if that provision survives the House/Senate negotiations?
Even if that incentive doesn't survive, lower mortgage interest rates likely will be part of the promised bank stimulus. Experts expect to see mortgage rates pushed as low as 4% with the new bank bailout package planned by the Treasury Department and the Fed as trillions are fed into banks to unfreeze the credit markets.
Home prices continue on their downward spiral and in most parts of the country homes prices fell at least 25% from their 2006 peak, according to the Standard & Poor's/Case-Schiller Home Price Index. Until home buyers feel confident that prices have hit bottom they'll continue to sit on the sidelines.
Add to all this price uncertainty the millions of job losses we've seen over the past 12 months and we have even fewer takers for all the homes sitting and waiting around for a buyer. If the $15,000 tax credit does survive, you will see more buyers, but since this tax credit can be used by anyone, you're also likely to see more homes listed so people can sell their old homes in order to move to new homes. A first time buyer credit would likely be more successful in cleaning up the backlog of homes for sale.
Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask About Buying Foreclosures" and "Surviving a Layoff: A Week-by-Week Guide to Getting Your Life Back Together."
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