If Mortgage Rates Keep Falling, Why Are Home Sales So Bad?

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As mortgage rates continue to fall, so too are home sales. That wouldn’t make sense in a normal housing market, but these are very unique times.

Credit, or lack thereof, coupled with extremely weak consumer confidence is keeping potential buyers on the fence.

Contracts to purchase existing homes plunged a far weaker-than-expected 11.6 percent in April, the heart of the spring housing season.

The National Association of Realtors’ Pending Home Sales Index is now 26 percent below its cyclical high in April of 2010, which was the deadline for the now-expired home buyer tax credit.

“The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” said NAR chief economist Lawrence Yun.

The drop in new contracts comes as mortgage rates continue to fall, just last week to the lowest level of the year so far. Freddie Mac reported 4.60 percent on the 30-year fixed, but analysts say even that’s not enough to move this tough housing market.

“Because mortgage rates have been so historically low for so long, the law of diminishing of returns has set in with respect to the low rates being the main influence and catalyst in purchasing a home,” says Peter Boockvar of Miller Tabak.

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