Federal Reserve Chair Janet Yellen and housing forecaster Robert Shiller said earlier this year that they expected low rates to serve as a stimulus to home buying this year.

Freddie Mac reported the 30-year fixed-rate mortgage dropped to 4.12 percent for the week ending Oct. 9, near the lowest average rate of the year. The rate is far less than a 20-year mean of more than 6 percent for the 30-year fixed-rate mortgage. Yet mortgage rates hovering near annual lows for the past few weeks have not spurred the market. What's going on?

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However, home sales are facing major challenges that even low borrowing costs can’t help. The Wall Street Journal explains that 2014 home sales “have been hit by poor weather, a low number of homes available for sale, and tight credit.” Also, the most popular home sales season—typically the spring and summer—has already come to an end.

“Families buying houses need to be done with that by the time that school starts,” says Guy Cecala, publisher of Inside Mortgage Finance. “Rates have been hovering around 4 percent for the better part of the peak home-buying season. I don’t think anybody has been sitting on the sidelines, waiting for rates to drop.”

Second, high credit standards in the wake of the financial crisis are still preventing many would-be buyers from getting a loan and taking advantage of the low rates.

“Right now the real issue isn’t the price of credit, it’s more the availability,” says Robert Denk, an economist with the National Association of Home Builders. Eighty three percent of homebuilders recently surveyed by NAHB say they have lost sales over the last six months due to buyers not qualifying for a mortgage. Tight credit has resulted in about 18,700 new-home sales lost, NAHB estimates. 

Source: The Wall Street Journal