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Were tax credits the only thing driving home sales?

Interest rates for home loans continue to be remarkable, with a Freddie Mac survey Thursday finding 15-year fixed mortgages setting record lows for the fourth consecutive month.

Yet demand for loans to buy homes has fallen by 35% over the last month, according to the Mortgage Bankers Assn.'s weekly reports.

Is there any conclusion to draw except that the fundamental demand for housing is just plain depressed despite signs of a reviving economy elsewhere?

Christopher Thornberg, the often-bearish founder of Westchester's Beacon Economics, sees not much to motivate home sales anytime soon after federal tax credits for homebuyers expired at the end of April.

"The blip is that sales got so hot because of the credits," Thornberg said.

How much longer could demand remain sluggish?

"How about a year?" Thornberg said. "Three years?"

With unemployment in double digits in California and close to that level nationally, and 12 million U.S. mortgage holders owing more than their houses are worth, "It sucks the life out of demand, absent something like a tax credit."

Although something like 700,000 new households might be in the market for entry-level housing each year, demand for larger trade-up homes is dependent on people feeling confident about their earnings increasing or finding better jobs elsewhere -- both still rarities, Thornberg said. 

A note: Thornberg is among the lucky homeowners whose personal situation is solid enough for a refinance. He said he's getting his replacement mortgage -- a jumbo loan, made at a higher rate because it is too large for Freddie and Fannie Mae to buy -- at 5.25% fixed for 30 years while paying no discount points to buy down the rate.

Mortgage rates are being kept low because they tend to track the yield on the 10-year U.S. Treasury bond, which has fallen again because of surging demand for Treasuries, as my colleague Tom Petruno discussed here Wednesday.

The weekly Freddie Mac survey calculates what lenders are offering to people with solid credit and 20% down payments or home equity, and can run slightly higher than what savvy borrowers are able to negotiate. It tracks smaller conforming mortgages, not a jumbo loan such as Thornberg's.

Freddie said the average 30-year fixed rate was at 4.72% early this week, the lowest level this year and nearly as low as the record for the survey, 4.71%, which was set last December.

The 15-year fixed loan was at 4.17%, the lowest since Freddie Mac began reporting on such loans in 1991. The borrowers would be paying the lender 0.7% of the loan balance in upfront fees and discount points to get the 15- and 30-year fixed rates.

-- E. Scott Reckard

 
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