Though mortgage rates have increased slightly in recent months, they have once again reached rock bottom according to Freddie Mac. The 30-year fixed-rate mortgage dropped to 4.63 percent in recent weeks, reaching an all time low once again.

In the past year, the United States has witnessed historically low mortgage rates, an action one would assume could lead to increased home sales. With the recent economic crisis, however, consumers are now more practical than ever, saving for a rainy day and wondering if their financial outlook will ever improve.

According to Janna Herron of the Associated Press, “Job worries and strict lending standards have kept potential buyers on the sidelines. And the high number of foreclosures is forcing home prices down, leaving some would-be buyers concerned that prices have yet to bottom out.”

Normally when the Federal Reserve reduces interest rates, the economy experiences a positive boost as it relates to home buying and refinancing. Yet, in the past year, the opposite has taken place. Consumers are hesitant about taking on any new large purchases for fear of losing their jobs or suffering another financial crisis.

Why Americans are Cautious about Buying Homes

The American public is increasingly concerned with the state of the economy.

Optimism

Though interest rates are still very low, many homes are still worth less than their mortgages. Major corporations in the last few years have crumbled along with people’s hopes for a financial turnaround. People have lost their jobs or had their incomes seriously slashed. With statistics like these, many are anxious and fearful to get stuck in a situation in which they cannot pay for a loan. Some simply do not possess the funds to buy a house. Others have the money, but instead, choose to save it for dire situations like a job loss or pay downgrade or to pay down their current debts. Harsh reality has set in and the optimism level has hit an all time low.

Down Payments

Required down payments are much higher than in previous years. Lenders desire at least 20% down. Though there are options for consumers to put down less, the days of “no money down” mortgages are long gone.

Higher Credit Requirements

In addition to down payments, credit requirements have become stricter, edging out consumers with low credit scores from achieving home ownership. With credit score requirements in the high 600′s, these standards have removed ineligible people from the home buying race until they can pay down their debt and reclaim a better financial status.

Declining Home Values

With home prices declining, consumers are afraid that if they buy a house, its value will continue to decline as well. Many potential homebuyers are waiting to see what happens to home prices. There is a strong possibility that once home prices start to edge their way back up, home sales will increase.

Changing Tides

Years ago, homeowners would extract cash out of their equity as if it were a bank. Home equity loans and refinancing were very popular options. According to Freddie Mac, conventional mortgage holders extracted $83.6 billion out of their homes in the second quarter of 2006. In the second quarter of 2010 $8.3 billion was taken out of homes, a far cry from $83.6 billion only a few years prior. Homeowners are increasingly cautious and are holding on to their money with clinched fists.

Time will Tell

Financial loss and optimism can take years to reclaim. The economic outlook, though gradually improving, will not be enough to compel potential homeowners to take action. Time heals all wounds and a few more years should tell the tale. But for now, it seems as if consumers are more interested in saving and recovering than living the American dream of home ownership.