What will it take to spur home sales?
Interest rates are at their lowest in 25 years and home prices are weak, making housing perhaps more affordable than ever.
But as the mortgage industry is discovering, that is not enough. While refinancings. which are highly sensitive to interest rates, have shattered all the records, purchases have not followed suit.
In fact, sales of new homes tumbled 5% in July, to a seasonally adjusted annual rate of 629,000 units, the government reported earlier this week.
Mortgage executives are uniformly disappointed by the sales activity - but they differ in their explanations of the problem.
"The economy is still fundamentally soft," said Thomas C. Brown, chief executive of Centerbank Mortgage in Waterbury. Conn. "There is a genuine concern in the marketplace over the economy, a concern over job stability, and that uncertainty has resulted in some lackluster housing demand."
Felix M. Beck, chief executive at Margaretten & Co., says the problem is simply that people are waiting to see how President CIinton's new economic initiatives will affect the country. And they are waiting in fear.
Sees Deferred Demand
"People see big companies letting people go, they see the economy weak, they're trying to understand the impact of taxes, they're worrying about how health care is going to affect the whole situation, and they're insecure about their own jobs and their own futures. As long as people are insecure about that, they're not rushing to buy new homes and take on new commitments."
Mr. Beck thinks there is a great deal of deferred demand stretching back over the last two years. He said national and international events since before the Gulf War have conspired to keep people from feeling secure enough to buy a home. Once the economy picks up, he said, sales should take off.
But not everyone in the industry agrees. James M. Wooten, a consultant and former chief executive at Lomas Mortgage in Dallas, believes there has been a fundamental shift in U.S. demographics that will depress housing sales for years to come.
Lack of Demand Cited
"I just don't think there's that many people that need a house," he said. "We're at a dip in the demographics of those who need the housing. Our war babies have already bought their second or third house."
Mr. Wooten, 73, has been in the industry since 1946, when he returned from World War II. In those days, the government could stimulate the economy by subsidizing housing. But with demand so low, such action no longer works, he said.
Low housing sales in the face of rock-bottom interest rates and enormous publicity about the availability and affordability of mortgages prove that there just isn't the same kind of demand there once was, he said.