Rising home sales likely to cool despite low rates

May 25, 2010 at 12:00a.m.

Associated Press

WASHINGTON

A now-expired homebuyer tax credit and low mortgage rates helped boost sales of previously occupied homes in April. The improvements aren’t likely to last.

The tax credit is now gone. And economists caution that Americans are facing so many financial obstacles that falling rates alone won’t be enough to lift the housing market.

“Although mortgage rates have fallen sharply, the combination of high unemployment, heavy indebtedness and tight credit suggest to us that demand will stumble,” said Paul Dales, an economist at Capital Economics.

Sales of previously owned homes rose 7.6 percent to a seasonally adjusted annual rate of 5.77 million, the National Association of Realtors said Monday.

The sales increase sparked a rise in home prices. The median price for a new home rose to $173,100, up 4 percent from a year ago.

Mortgage rates fell last week to the lowest level for the year. The average rate on a 30-year loan ticked up slightly to 4.87 on Monday, according to financial publisher HSH Associates. That was just above the record low of 4.83 percent last December,

Worries over the European debt crisis have sent investors rushing into the safety of U.S. government bonds, whose yields affect some mortgage rates.

Rates had been expected to rise after the Federal Reserve ended a mortgage-buying program that pushed rates down to record lows last year. But the uncertainty in Europe has helped drive rates down for anyone who’s closing a home purchase or looking to refinance. Rates on 30-year home loans are generally tied to the yield on 10-year Treasury bonds.

Still, Americans with adjustable rate mortgages could see slightly higher rates. About 70 percent of such loans reset based on the London Interbank Offered Rate. That’s the rate large international banks use when extending short-term loans to each other. This rate has been rising because of the turmoil in Europe. It’s still well below year-ago levels.