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Housing recovery seems pretty flat, interest rates down..again.
July 30, 2014

You can now get a 30-year fixed mortgage for under 4%. As of now, the numbers tick slightly, but the range remains remarkably low 3.96% to 4.08%. It's extremely weird, verging on stunning when you consider we are supposedly in the later stages of a recovery.

Usually at this point in an economic turnaround, things are rocking, and interest rates are rising. We all know the economy isnt rocking. As a result, interest rates are not rising. Whats weird is that those rates are dropping, which usually presages something bad happening.

Even with absurdly-low interest rates for whats been years now, its hard to make the case theyve triggered any kind of housing boom. Sales of new single-family homes fell 4.9% through the first six months of the year. They were down 8.1% in June.

Some economists and real estate experts argue its still pretty tough to qualify for a loan, and bankers arent making it any easier, demanding more upfront money from borrowers to avoid any of the problems they've encountered post-meltdown.

Its been more than six years now, and some very sharp number crunchers are getting worried. Even bankers who are lending say they arent seeing a lot of customers lining up. Caution is the word, said one. They just seem very tentative, even skeptical.

Polls bear out some of this out. Among young people, theres a nagging sense that owning a home just might not be all its cracked up to be. As personal finance expert Larry Winget recently said, Theyve seen their parents lose homes, and that kind of thing sticks with you.

Thats why so few homebuyers have been millennials. Much of the activity we have seen has come from generally older, often much older buyers, and a good many of them are paying cash. The irony is that this pessimism reigns when the lowest interest rates of a generation are returning to defy historical norms.

Buyers dont budge, sensing interest rates might fall even further, and sellers dont move, hoping their suddenly higher-value homes keep increasing in value. I suspect the low rates actually are inhibiting activity because theyre leaving some folks to wonder whether they indicate that the lackluster recovery they feel in their bones is playing out in reality.

If so, the ramifications for the economy could be pronounced, particularly in the second half. The National Association of Home Builders already reports housings sway over the economy isnt what it wascloser to half the 5% employment and growth generator it was.

The fact that home builders are finding land harder, and pricier, to come by doesnt help. Industry giant Ara Hovnanian recently said that the days of cheap and available building lots have gone by the wayside, and passing along those increases in some communities hasnt been easy. Yet he remains optimistic for the longer-term, convinced that household formations still favor the demand over supply side of the equation.

Most point to a delicate balance of higher home prices on the one side (median home prices for new homes are up close to 18% over the last two years), and stagnant demand on the other. History suggests one of two things eventually happens during such periods: either the prices come down or the demand picks up.

Add in home appraisals that remain unusually conservative some realtors argue ridiculously so and its little wonder sellers can unload at the price they want, or even the most eager buyers at the mortgage they want.

Its a unique phenomenon, and for many, a scary one. Interest rates are once again at all-time lows, but with too few buyers. Those that want in, cant, and those who can dive in, dont. None of this means housing isnt a compelling investment, but when real estate trendsetter Zillow estimates some home values may take another few years to reach their pre-meltdown peak, it makes people nervous.

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