Mortgage Rate Drop is Not Expected To Create Huge Demand
The good news is that mortgage rates have fallen after word hit the street that the government is taking over Freddie Mac and Fannie Mae. The bad news is that credit is still so tight that it will not have that great an impact on the marketplace.
For those in a solid financial place having the ability to refinance is great, but lenders standards for writing loans are still so tough that buyers, especially first timers, are having a hard time getting approved. So interest rates dropping are not going to have the effect that many real estate agents are hoping for.
The decline in rates is “a small positive,” for the Bay Area housing market, said Kenneth T. Rosen, chairman of the Fisher Center for Real Estate at the University of California-Berkeley. He estimated that lower rates could increase buyer demand by 4 percent or 5 percent, but mostly among borrowers with high credit scores who can make big down payments — people who weren’t experiencing much trouble getting loans anyway.
Mortgage rates fell Monday in response to the federal government’s virtual takeover of struggling mortgage financing companies Fannie Mae and Freddie Mac, which was announced Sunday.
It’s too soon to tell whether interest in the lower rates will translate into significant improvement for the local real estate market. via San Jose Mercury News
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This should be interesting to watch. Thanks for the heads up 
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Comment by Santa Barbara Real Estate Voice on 11 September 2008:
From what I have read and heard, I tend to agree with the points made above. I do think this will spurn buyers who already have equity, will drive a hadn full of more refi opportunites etc. But for the first time home buyer, it will help only a marginal few.
Comment by Richard Miller on 11 September 2008:
Many will need to sell and existing home to buy a new home. Home owners would rather refinance to a lower rate than sell at a lower price in order to buy a home.