Potential homebuyers scared off by financial crisis

Just as interest rates were trending down and buyers were regaining some confidence to re-enter the housing market, the first rumblings of the ongoing financial crisis started. Forget the 9% rates that Wells Fargo is charging on 30-year jumbo loans -- people worried about the near-term future generally aren't in the mood to make big purchases. From a CNNMoney.com story:

Housing markets finally looked like they might be stabilizing when the crisis on Wall Street hit last week, shattering many home buyers' resolve.

Glenn Kelman, founder of the online brokerage house Redfin, reports that business at his company had been humming, thanks to a steep, six-week drop in interest rates as well as the government takeover of mortgage giants Fannie Mae (FME) and Freddie Mac (FRE, Fortune 500).

But now, Kelman says that some people are pulling out of deals. "Clients have expressed their reservations about continuing the process," in the wake of recent events, according to Redfin broker Febe Cude...

Further complicating matters, interest rates started to creep back up late last week.

By Tuesday, the 30-year fixed had nudged up from 5.78% to 6.26%, according to Keith Gumbinger of HSH Associate, a publisher of financial information.

"It's a very perilous time in the financial markets right now," Gumbinger said. "That makes for a very uncertain rate environment."

The nearly half-point interest rate jump turned off buyers like a switch, according to Steve Habetz, a mortgage broker with Threshold Mortgage in Connecticut. "Things quieted down almost immediately," he said...

Home buyers are also facing a slowing overall economy that's shedding 100,000 jobs a month. Layoffs are of course especially high in the financial sector...

It's going to take a while for consumers to process everything that's happened lately, according to Jim Gillespie, CEO of Coldwell Banker, one of the nation's largest real estate brokers.

"Consumers have been subjected to a barrage of information," he said, "Once they grasp what has happened, they'll understand that mortgage interest rates are still near historic lows, that they have a lot of homes to choose from, and that price corrections have improved affordability."

Whether that will be enough to overcome people's reluctance to buy in declining markets as their jobs and their nest eggs grow more threatened is very much in doubt.