Mortgage rates hit record lows. Why aren't Americans borrowing?

Mortgage rates fell to a 54-year low this week. But home purchases declined.

Paul Sakuma/AP/File
Mortgage rates have hit lows not seen since the Eisenhower administration, but buyers aren't buying and the jump in refinancings is modest. In this May photo, a gardener cuts the grass at a bank owned foreclosed home in Palo Alto, Calif.

It looks like a great time to buy a home. Prices are falling. Mortgage rates are at 50-year lows. But a funny thing happened on the way to the mortgage banker.

Home buyers are in retreat. Homeowners, who could refinance at a lower rate, are mostly sitting on the sidelines.

What's going on?

The fear of risk is on the rise. As home sales and values start dropping again, home buyers and homeowners are reluctant to borrow and bankers are warier of lending.

The average 30-year fixed-rate mortgage fell to 4.58 percent this week, the lowest rate on record, mortgage-purchaser Freddie Mac reported Thursday.

Fifteen-year fixed and five-year adjustable rates also fell to levels not seen since the organization began tracking them in 1971.

The rates are probably the lowest since 1956, mortgage-watchers say, although the terms of the loan were a little different back then.

Despite these Eisenhower-era rates, would-be home buyers are hanging back. The number of purchasers last week fell a seasonally adjusted 3.3 percent from the previous week – the seventh decline in eight weeks, the Mortgage Bankers Association (MBA) reported Wednesday. The group's puchase index is hovering near 13-year lows.

The number of refinancings did rise last week – some 12.6 percent from the previous week "but remain at about half the level seen in the spring of 2009,” said Michael Fratantoni, MBA’s vice president of research and economics, in a release.

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