Despite Low Rates, Buyers Still on the Fence

The Federal Reserve last week announced that it would keep the key interest rate low for at least the next two years. But even low interest rates can’t seem to get home buyers off the sidelines.

“Under normal circumstances, the Fed's announcement might have attracted new home and car buyers and prompted credit card holders to rack up fresh charges,” according to a recent New York Times article. “But with unemployment high and those with jobs worried about keeping them, consumers are more concerned about paying off the loans they already have than adding more debt. And by showing its hand for the next two years, the Fed may have inadvertently invited prospective borrowers to put off large purchases.”

Credit remains tight, despite the low interest rates, and that is also keeping some buyers out, analysts say. Also, with more home owners underwater on their mortgage, they cannot afford to sell their home and move up to a new home, experts say.

Applications for new mortgages have slowed this year to a 10-year low, reports the Mortgage Bankers Association.

Source: “Low Rates May Do Little to Entice Nervous Consumers,” The New York Times (Aug. 15, 2011)