Lower Mortgage Rates Fail to Motivate Homebuyers

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Lower Rates Fail to Fuel Homebuyers
Jeff Chiu/AP
By Diana Olick | @diana_olick

Interest rates for U.S. mortgages dropped to their lowest level in over a year last week, but that wasn't enough to move potential homebuyers off the fence and into a house.

Total mortgage application volume rose just 0.2 percent last week from the previous week, on a seasonally adjusted basis, according to the Mortgage Bankers Association. This as the average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.25 percent from 4.28 percent, the lowest level since June, 2013.

Applications to refinance loans rose 1 percent on week, while applications to purchase a home fell 2 percent and are down nearly 12 percent on-year. The rise in refinances was led by government-insured and financed loans from the Federal Housing Administration and the Department of Veterans Affairs.

"There was an almost 12 percent jump in refinance applications for government loans, led by an 18 percent increase in FHA refinance applications," said Michael Fratantoni, chief economist for the MBA. "The increase likely reflected an effort by some lenders to reinvigorate their FHA refinance programs."

Mortgage rates wavered in a tight range for the past year, never edging below the emotionally significant 4 percent line, where they had been at the beginning of 2013. Rates haven't fallen significantly in part because banks don't expect the recent rallies in the Treasury market to continue; instead they still see interest rates moving higher toward the end of this year.

As for homebuyers, the slight move lower in rates this summer hasn't been enough incentive lure them into the market.

"Borrowers who are most sensitive to interest rates took action and bought homes the last time when rates were this low," said Goldman Sachs (GS) analyst Hui Shan in a note to investors. "Therefore, the remaining pool of borrowers who haven't bought homes are proven to be less sensitive to interest rates and are less likely to buy houses when mortgage rates reach the current level again."

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Lower Mortgage Rates Fail to Motivate Homebuyers
For many employers, open enrollment season for some benefits happens in October. This usually sneaks up on some people, who scramble to decipher benefits and make elections last minute. Although you won't be able to see the options until the enrollment period opens, take time now to review your benefits. Are you taking advantage of any 401(k) matches? Are your fully funding your Flexible Spending Account? What about employer offered life and disability insurance? (A fun infographic from the Council for Disability Awareness shows your risks). Maximize your benefits and don't leave any money on the table.
Back-to-school time can be expensive if you're not prepared. Money is spent on clothes, books, supplies and technology -- and that's before the doors to the classroom have even opened. Before hitting the stores, do these two things:
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  • Get a list from you class or teacher of specific type of notebook, calculator, etc. required. If you can't get child's "must haves" from ahead of time, buy just the bare minimums until school starts and the list is available.
It's hard to think about the holidays when we're just making it through summer, but now is the time to build up a financial cushion. Set yourself up with an automatic transfer to a separate savings account and participate in the Holiday Fund Money Challenge to build up a savings of $450. How much do you need for the gifts, travel, parties, entertaining, food and other holiday activities you anticipate? Planning will help to ease the stress that comes around the holidays.
In lieu of scrambling at the end of the year to make contributions to retirement accounts by Dec. 31, double-check your contributions now and determine if there's room in your cash flow to allow for an increase to possibly max out by year end.
Summer is a typically a time of transitions. There are weddings, moves to new homes, possibly a new family addition and more. If summer is the time when these events take place, fall should be the time to take stock of how they're panning out. If you're recently married and haven't already, now is the time to have the money talk with your spouse and make decisions about spending plans, merging (or not merging) accounts, beneficiary updates and more. If you've moved, check out how the new location has affected your cost of living spending in terms of activities, gas costs, groceries and more. Ultimately with any transition, you need to review your spending plan and determine what areas (if any) need to be adjusted.
If you're lucky enough to live in one of the states that actually experiences seasons, fall is the time to prep for energy savings by caulking and weatherstripping doors and windows, turning your thermostat back for a fixed period each day and insulating your attic, basement or outside walls.
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