In another generally fluffy bit of reporting on the housing market, the Associated Press reports that mortgage rates are once again dropping towards record lows and the housing market continues to look

terrible.  While that's no surprise to readers of this blog, what I do find surprising is how seeming normal market conditions are being blamed for the housing slump.

After the record credit driven bubble in housing we've just had, the recent correction has just taken us back down to credit standards which prevailed for decades before the start of the bubble in 2003 — 20% down payment, strong credit scores, and solid employment history.  These are good and sobering adjustments that will provide for long-term stability in the housing market.  If we were to back off of them, we'll likely get a temporary boost in housing and just further delay the inevitable.  But sticking with those standards, we're swallowing the bitter pill and waiting for the patient to recover, a seemingly rational and yet increasingly un-American approach.

The market has simply revealed the reality that as a country, our normal demand for new housing isn't anywhere near the bubble highs, but that's just normal.  The few qualified first-time home buyers will slowly absorb the market and they will most likely hold on to their homes for many years, bringing the market back to the norm.

The inability of all the home owners who are underwater to get refinancing is as much a cause of our current ultra low mortgage rates as a unfortunate consequence.  If somehow the housing market recovered so that these home owners can qualify for refinancing, the surge of demand for credit will immediately drive up rates, nullifying the current rate advantages.  Today's fear driven market around the world has created a safety premium for our US Treasuries, ratings warnings be damned.  This has created a unique opportunity for those with cash reserves to secure ever lower costs for long-term debt and capture increasing wealth from the debt cost advantage.

So, the old adage rings true again.  The well-prepared and patient can take advantage of amazing opportunities, but it's hard to stay disciplined when good opportunities come ever so rarely.  In today's environment, it's time for some to make their move.