Clearly, low rates and affordable housing will not revive the condition of the housing market as we know it. Even the Fed's recent proclamation of low rates for the next two years will not stimulate the housing market. In a twisted way, it might even reduce the chances of stimulation.
With rates being held at bay and housing prices continuing to decline in some markets and remain level in most others, there is no sense of urgency for buyers to get off of the fence. Weakened US and world economies and fear of unemployment have led to a negative psychological effect on spending, causing buyers and sellers to retreat and lose confidence in the idea of home buying and selling.
Aside from investors and first time home buyers, the balance of routine buyers and sellers seems to be slimming by the minute. Even the refinancing market has taken a huge hit. With homeowners not qualified to refinance due to residential depreciation, many no longer own a home with 20 percent equity.
One proposed solution is the formation of a national refinancing initiative, designed to have a positive effect on consumer spending and give homeowners the incentive to not walk away from their homes. The initiative would extend a lower rate guarantee to all new mortgages, the aforementioned conditions of qulification not withstanding. Of course, mortgage bond investors, currently collecting the higher interest rates on current loans, would not make as much money. This could be viewed as "unfair." But with the weakening economy, many people feel that the government should be more concerned with actions designed to stimulate growth.
Should this national refinancing initiative gain any traction, it could serve as a long term stimulus by allowing homeowners to save thousands of dollars a year for many years to come. Provided they pump that extra money back into the economy, positive effects of this plan to action should occur.
I'm not a mortgage bond investor, and I don't want to sound callus regarding the sacrifice they would be making under this proposal, but someone, somewhere is going to have to sacrifice something in order to help get this thing turned around.