REALTOR® Magazine-Daily News-Could Lower Rates Harm Home Sales?

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Daily Real Estate News | December 10, 2008 | Could Lower Rates Harm Home Sales?
Not everybody thinks the federal government is on the right track by lowering interest rates and putting other incentives in place to encourage home sales.

Some financial analysts are complaining that the possibility that mortgage rates will go still lower is keeping potential buyers from leaping in.

For instance, Jon Eisen, a San Diego mortgage broker, said he has three clients who were prepared to refinance until they heard that the U.S. Treasury is considering a proposal to lower interest rates for new home purchases. Now, he says, they “want to wait and see if I can get them a lower rate.”

Other observers are concerned that the government is going too far to pump up the housing market.

When you combine the Fed plan with the prospects of this new Treasury plan, that’s a lot in a very short period of time,” says Greg McBride, senior financial analyst at Bankrate.com. “Anytime you get that much action in a short period of time, you have to worry… are we inflating the next bubble?”

But NAR chief economist Lawrence Yun says that reports of subsidized mortgage rates could lure many more potential buyers than the handful of serious buyers who may decide to hold out for lower rates. But he concedes that, in the short term, the news of potential rate drops “could hold back some consumers” who were planning to buy immediately.

Source: WSJ.com, Nick Timiraos (12/10/2008)