U.S. 30-year mortgage rates are at record lows but it does not matter. Too few want to buy and many cannot refinance because they are underwater.

Fixed mortgage rates fell this week to the lowest levels in six decades. But few Americans can take advantage of the rates to refinance or buy a home.

The average rate for the 30-year fixed mortgage fell to 4.12 percent, down from 4.22 percent, Freddie Mac said Thursday. It’s the lowest level on records dating back to 1971. Freddie Mac said the last time rates were cheaper was 1951, when most long-term home loans lasted just 20 or 25 years.

The average rate on a 15-year fixed mortgage, a popular refinancing option, fell to 3.33 percent from 3.39 percent. That’s the lowest on records dating to 1991 and likely the lowest ever, according to economists.

Over the past year, the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks. That compares with five years ago, when the average 30-year fixed rate was near 6.5 percent.

Yet sales of new homes are on pace to finish the year as the lowest on records dating back a half-century. The pace of re-sales is shaping up to be the worst in 14 years.

Many Americans are in no position to buy. High unemployment, scant wage gains and large debt loads have kept them away.

Others can’t qualify for the lowest rates. Banks are insisting on higher credit scores and 20 percent down payments for first-time buyers. Many repeat buyers have too little equity invested in their homes to meet loan requirements.

Roughly 40 percent of U.S. households have the necessary credit scores above 700 to get a prime mortgage rate, according to an Associated Press analysis of Fair Isaac Corp., or FICO, data.

A bigger issue is just half of Americans say they’ll ever be able to save enough money for any type of down payment, let alone one as high as 20 percent, according to a survey by the National Foundation for Credit Counseling.

Nearly a third of homeowners have nearly zero equity or are underwater in their mortgage, according to the real estate research firm CoreLogic. That leaves then unable to refinance because of lender-imposed limits and the cost of extra fees.

These findings should not be surprising. I discussed the setup in Five Rules to Remember When Dealing with Real Estate Agents; Why are New Home Sales So Low? How Big is the Pool of Eligible Home Buyers?

How Big is the Pool of Eligible Home Buyers?

Here is a set of questions that will explain what is happening now.

How many people ….

  1. Don’t have a house?
  2. Want a house?
  3. Can afford a house, upkeep, and property taxes?
  4. Have a needed cash cushion in the bank?
  5. Have a decent down payment for a house?
  6. Have a salary that can support interest and principal payments even at these low rates?
  7. Are not scared s*less about the loss of a job, assuming they do want a house and meet the rest of the conditions?

Someone needs to meet all of those conditions before they will buy a new house. How many is that?

I just happen to have the answer.

New Home Sales at 1963 Levels

The Los Angeles Times reports New home sales drop to six-month low

Sales of newly built homes fell in July to the lowest level in six months, as the nation’s housing market continues to struggle.

Newly constructed single-family homes sold at a seasonally adjusted annual rate of 298,000, putting the industry on a pace to post the lowest annual sales since the Commerce Department began keeping data in 1963.

Is the eligible buyers’ pool getting bigger or smaller?

The trend says smaller, in spite of falling interest rates and falling prices. Many items on my 7 point list are more important than interest rates, notably 1, 2, 3, 5, and 7.

That is the psychology of the situation and I see little reason for it to change until the labor market changes first.

Mike “Mish” Shedlock
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