With mortgage payments getting backed up further and further it is only time before banks catch up and complete the process of foreclosing on many of these homes.  This is very bad news for the housing market and the overall economy.  With bad credit unsecured personal loans no longer the big concern another concern arises in the form of unemployment and foreclosure.

Author: Alan Lake

The one thing that all economists and market mavens agree on is that the economy is in horrible condition.  Just how bad of condition is up for debate.  One of the most intriguing questions that we can currently ask is will low mortgage rates help the economy?  The president and Federal Government sure seem to think so; they are sinking trillions into the theory that low mortgage rates WILL help the economy.

Ben Bernanke and President Obama have made it quite apparent that they feel the housing market is going to lead us out of this recession.  There is so much money and credit involved in housing that is is the number one influence on American’s lives in the current economic state.  The largest financial burden that most American citizens have is paying their mortgage each month.  It is also true that the largest financial decision most American adults make is which house to buy and how much to spend on it.

Unfortunately, many young adults have been told that buying a house is the best financial decision they can make.  Why is it the best financial decision?  The answer that most people give is because it is an investment that always goes up in value.  Well, that is not the case anymore.  The bubbles that were created in the 1990s and early 2000s prove that what goes up must come down.  If you were an unfortunate home owner who bought near the top in June of 2006, you are learning that the hard way.

Some markets are down over 50% since the top and it is likely to get worse as foreclosures continue to rise.  The government is doing everything in their power to make sure that foreclosures decline, but it is not working as they thought.  The amount of unemployment coupled with the decrease in home prices is absolutely killing some of the bubble markets such as Phoenix, Las Vegas and Miami.

There is little doubt that there is great money to be made in this markets many years into the future, but only the extremely smart individuals have money in the current economy.  All of those young adults who bought a home between 2006 and today are likely to be underwater in some of the major housing markets in America.  There is very little to do about this as there is no way to force home prices to go up.  You could renovate and make your house more attractive but that is taking even more money out of the wallets of people who are struggling to make ends meet.

With this situation being the case, isn’t it the case that low mortgage rates will help the economy?  I would argue that lower mortgage rates are going to do very little to help the economy.  If mortgage rates are at 2% and the unemployment rate continues to rise, will it really make any difference?  People need an excess of money to make big financial decisions.  If there is very little money being made in the current economy, who is going to be able to buy a new house?

Getting new homes off the market is the major occurrence that needs to happen.  Obviously many current home owners will refinance at lower rates and save some money that way, but are they going to use that money to buy another home?  I seriously doubt that to be the case.  They will use the money to stimulate the economy in some way, but it is highly unlikely that they will refinance at a lower rate and turn around and buy another house with their savings.  It is possible that some home owners will do that, but not enough to get the new housing supply under eight months.

The only way that new housing supply is going to greatly decrease is if there is a swarm of new home buyers that hit the market.  Well, now that college graduates are finding it harder and harder to land a solid job, who is left to buy up these homes?  Until there is a hiring increase throughout the country, it is hard to imagine that many recent grads are going to sink a huge amount of money into a house that could decrease in value as soon as they buy it.

Another problem with relying on recent college grads is the fact that many of them are already in debt because of college loans.  I have many friends that are relucatant to buy a house today because they want to pay off a large part of their college loans first.  They are also extremely scared that they are going to get ripped off or buy a home that sees a strong decline in value for the first few years that they own it.

Most college students have not studied the housing market or mortgage rates that much.  I would be willing to bet that many of them have no clue that mortgage rates are near historic lows.  I am sure there is a way to educate the future leaders of this country, but we have yet to figure it out.  Do not get me wrong, there are some college students that already own a home and are subleasing it out to their buddies, but those young entrepreneurs are few and far between.

Overall, I think the fact that college grads are struggling to find jobs is going to prove that low mortgage rates will not help the economy.  Low mortgage rates will spark the interest of current home owners who have been thinking about refinancing but that is going to do nothing to get housing supply off the market.  I know President Obama and Ben Bernanke think that housing will lead us out of this troubled time, but we truly need to create jobs to assist the current housing market.

If you are a recent college graduate who is looking for a job and you are debating to buy a home or not, please educate yourself to the best of your ability.  Do not let friends, family, mortgage lenders or tv shows tell you that you should buy a house.  Do your research and make that decision for yourself.