Record low mortgage rates may not have as much of an effect on housing demand as some people think, ""Capital Economics"":http://www.capitaleconomics.com/ said in its most recent U.S. Housing Market Update.
[IMAGE]In recent months, data from the Mortgage Bankers Association, Freddie Mac, Bankrate, and other firms has shown mortgage rates steadily falling, hitting new lows week after week in some measures. However, Capital Economics contends that there is actually little evidence to suggest that this activity is translating into heavier demand.
While the Federal Reserve's Senior Loan Officer Survey reported rising demand for mortgage finance in the past three quarters, this increase in demand hasn't shown up in mortgage applications for home purchase, which have remained relatively flat.
In addition, mortgage credit conditions have not relaxed since the credit crunch, meaning consumers who may be tempted to take advantage of low mortgage rates might not be able to secure a loan. Capital Economics' release points to data from Ellie Mae showing that a successful mortgage applicant needed a credit score of 746 in June-the average American's score is about 690.
The firm attributes recent home sales gains to growing demand from investors and cash buyers, two groups that don't directly benefit from lower mortgage rates. However, with bond yields and savings rates low, investor demand is likely tied to lower mortgage interest rates in a more general sense. Capital Economics argued that these purchasers are attracted to housing ""in part because of low yields elsewhere.""
Additionally, Capital Economics asserted that falling rates have had a more indirect effect on housing demand. With refinancing levels seeing in an increase as rates drop, more homeowners are able to stay in their homes, keeping supply down and inflating demand.