Mortgage Rates Going to 4.5%?

As reported by CNNMoney.com - "Lower mortgage rates no silver bullet":

While Treasury officials are keeping mum about the latest proposal, lobbyists said Thursday it is aimed at reducing rates to 4.5% only for people buying homes. Those looking to refinance would not qualify.

How will dropping rates put a dent in our housing crisis?

Lowering rates to 4.5% -- about a percentage point below today's rate -- would spur 500,000 home sales over the next year, he said. That would put a big dent in the supply of 4.6 million homes on the market. Right now, there is a 10-month supply of homes for sale, three to four months more than in normal conditions.

A 4.5% mortgage rate would prompt many people to buy, even if they fear home prices will continue to fall and the economy to weaken, he said. Rates have not fallen below 5.37% for 45 years.

A wave of purchases should stabilize home values, which, in turn, will help the economy to turn around.

Will dropping the rates to 4.5% do the trick?

What's keeping many home buyers out of the market are stringent lending standards, not interest rates, experts said. As long as credit remains tight and banks require 20% downpayments, many buyers will remain on the sidelines.

Instead, banks should make mortgages available with a 5% or 10% downpayment, Rosen said. And while he doesn't advocate a return to the "mirror standard" (when borrowers could get money if they simply could fog a mirror), banks should allow more people to qualify for fixed-rate mortgages if they show sufficient income.

Our thoughts. Sure, some of this is going to help. In the near term, it can't hurt. In the long term, another story.

Program after program. Dollars chasing more dollars. Bailout and incentives after bailout and incentives. Sooner or later some of this will ultimately make a mark. Throw enough against the wall, something will stick.

Unfortunately, all of these measures seem to be nothing more than haphazard attempts at applying band-aids to a severed artery.

"If at first you don't succeed, Try, try again." There's a lot of trying going on and not much of anything else.