Why low interest rates are not encouraging home purchases

Recent stock market volatility has continued to concern consumers and push investors to pull their money from stocks and put them in safer U.S. Treasuries. The increase in bond purchases has driven down the yield and resulted in the lowest interest rates seen in 70 years.

In an interview with Reuters, president of consumer education at SmartCredit.com, John Ulzheimer, said that strict lending requirements are a major obstacle for many potential homebuyers looking to capitalize on the historically low interest rates. With some lenders rejecting applicants with credit scores below 750, the disparity between qualified borrowers and available housing continues to widen.

"For somebody who is unemployed or under-employed or upside down on their house, there is no way for them to take advantage of these rates," Ulzheimer told the news source.

The U.S. Department of Labor recently reported 408,000 Americans applied for jobless benefits last week, an increase of 9,000 from the week before. Diane Swonk, chief economist of Mesirow Financial told USA Today that reported job growth of 100,000 to 150,000 a month is working to keep the national unemployment rate level.

According to Reuters, low Treasury yields affect more than just mortgage rates. Car loans are expected to reach record lows as well, while credit card interest rates should remain stable as they are tied to the prime rate not bonds. In the end, the most important aspect affecting consumers' credit card rates is their credit scores, Ulzheimer said.

"A credit score of 750 buys you a 4.3 percent rate on an auto loan, but a 580 gets you a 17 percent for same exact car," Ulzheimer said. "So you're paying $170 more per month, for a $20,000 loan just because you have poor credit." 

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