Mortgage Rates Scream Buy on Deaf Ears

Mortgage rates have hit an all-time low, but investors and consumers are not hearing a screaming buy signal. The average rate on a 30-year fixed-rate mortgage dropped to 4.69 percent this week from 4.75 percent last week, Freddie Mac reported Thursday. That marks the lowest level since the company started tracking the data in 1971 and breaks the most recent low set in December. Rates have hovered below 5 percent since early May.

Yet home sales are tumbling and mortgage applications are slipping. Potential buyers have retrenched, discouraged by employment fears, the recent expiration of a home buyer's tax credit and tough lending standards, industry experts said.

Perhaps a better explanation is housing prices. If home prices are set to continue to drop, the interest rate will have little effect on consumer buying confidence. Any interest rate borrowed against an asset with declining value is a bad deal, investors, and now many potential home buyers, know this all to well.

A clear signal that housing prices have at least stabilized will then re-shift the focus back on interest rates. Until then, any change in rates, up or down, will fall on deaf ears.