<p>Dstark-
I think I understand where you are coming from but I think we may be talking about different things:</p>
<p>“Lower interest rates don’t increase the values of housing?”</p>
<p>They would in a health economy, with lower interest rates people can afford either to buy as house or buy a more expensive one then they normally would, it stimulates demand in buying houses and that causes prices to go up…but that also assumes a lot of things, it assumes:</p>
<p>-People’s incomes are such that they can afford to buy a house
-There isn’t an excess of housing stock. </p>
<p>The problem is both of those things are not true right now. For one thing, even for people working, they have lost ground, people have faced pay cuts, they have faced losing a salary from a spouse, and have also seen the cost of other things like food and energy go up. And especially among young people, who usually are big purchaser of houses, the job situation is bleak…</p>
<p>“I guess it is true…at the tails of a distribution of economic outcomes…interest rates changes aren’t as effective.”</p>
<p>Interest rate changes are effective, but only if banks are willing to lend and there is demand for the loans. Right now, banks don’t want to lend because they are on shaky ground, and many people either don’t have the credit to borrow, or they are afraid to borrow because they are afraid for their job. When economic times are tough, people are not likely to leverage themselves with new debt when they are afraid of the future. </p>
<p>“But when people are stuck with loans of 6% or more…I think we have some room.” </p>
<p>There is, though as I know too well, the banks don’t want to refinance either. In my case, house prices in my area haven’t gone down that much, they are pretty stable, and I have enough equity to refinance based on house sale rates…but the banks I have talked to are using broad based rates of decline in house prices to figure out future exposure so they basically are denying me refinancing because they think the price on my house is going to go down X% a year. </p>
<p>"When mortgages are 4% for the 30 year and, the downpayment rules are lessened, and homeowners can refinance, point out how wrong I am. "</p>
<p>Not wrong, but I question what that is going to do. Yes, the homeowner will have a smaller house payment (and for example, could continue to pay at the old rate and pay the mortgage off sooner), but it won’t change the value of their house or others…and the stimulus that would give is muted, because even though they are saving X hundreds a month, they aren’t likely to use that to spend.</p>
the banks have to step up too…the banks have to contribute to helping society…and by doing this it will actually help the banks.</p>