Refinancing soars, but homes aren't selling

Sales will suffer as long as high unemployment persists, experts say.

By Kim Peterson Aug 18, 2010 2:05PM
Home Financing low loan rates © Corbis While mortgage rates have been at record lows, they aren't doing much to boost home sales. Instead, refinance activity is exploding.

Refinancing jumped 17% in the week ended Aug. 13, according to the Mortgage Bankers Association's index. It hit the highest level since May 2009.

But home purchases fell 3.4%. Home sales are going to suffer as long as the unemployment rate hovers at 10%, experts say.

So what does this say about the economy? On one hand, refinancing is good in that it gives homeowners more money to spend, writes Matt Phillips at MarketBeat. But then you could argue that super-low mortgage rates are what got us into this mess (partly, at least).

Unfortunately, low mortgage rates are doing nothing to help people whose mortgages are "underwater." Post continues after video:
Sluggish home sales are causing the building business to drop off. Construction on single-family homes has plummeted.

"The next 12 to 24 months will be challenging in the homebuilding industry," the chief executive of D.R. Horton told investors recently, according to Bloomberg.

"This economic response to low rates is indicative of our whole economy that has the Fed now pushing on a string," writes Barry Ritholtz at The Big Picture. "In times of deleveraging, lower rates only encourage refis, not new economic activity, whether the purchase of a home or the expansion of a business."

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