NEW YORK (CNNMoney.com) -- Reducing mortgage rates to a historically low 4.5% may entice some home buyers out of the shadows, but it won't be enough to really spur housing sales, experts said.
Only a week after the Federal Reserve unveiled a $600 billion plan to reduce mortgage rates, the Treasury Department is considering adding to the effort to lower rates even more. Both moves are intended to get more buyers into the market in hopes of stabilizing home prices and reviving the economy.
While Treasury officials are keeping mum about the latest proposal, lobbyists said Thursday it is aimed at reducing rates to 4.5% only for people buying homes. Those looking to refinance would not qualify.
There's no doubt, experts say, that the government needs to provide incentives to home buyers.
Until now, all efforts were focused on addressing the record number of mortgage delinquencies. This should remain the priority, experts say, but it should be coupled with increasing demand for homes.
Adjusting mortgage rates, however, will only go so far in getting prospective home buyers into the market, experts said. Potential buyers remain spooked by falling home prices and rising unemployment. And even those who want to buy cannot find loans with reasonable downpayments and terms.
"The problem is not interest rates," said Kenneth Rosen, chair of the Fisher Center for Real Estate at University of California, Berkeley. "It's the availability of credit."
And, of course, there's still the issue of stemming foreclosures. The Bush administration has been loathe to mandate widespread loan modifications. Instead, it is opting to chip away at the problem by adjusting loans held by Fannie Mae and Freddie Mac and by asking banks to expand their programs.
But even federal officials acknowledge the economy won't recover until the tidal wave of foreclosures ends. Federal Reserve Chairman Ben Bernanke Thursday said the government must do more to help struggling homeowners, possibly by buying delinquent mortgages and refinancing them to more affordable terms.
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