Combating a Deflationary Mindset
One of the unintended consequences of falling prices — for new homes, existing homes, mortgage rates, etc. — is that would-be Buyers get out of the way, and wait for even bigger drops. There’s some anecdotal evidence that that’s the psychology behind many Buyers’ reluctance to buy or even refinance at the moment. (Of course, a weak economy and rising unemployment have their own chilling effect.)
To pick just one example in the housing market, 30 year mortgage rates are now at 5%, the lowest they’ve been in more than 50 years, and significantly below the rates that prevailed during the market peak in 2006. However, many Buyers’ reaction is to wait and see if rates improve even more.
On a national scale, when this “wait for better prices tomorrow” mindset takes hold, it’s called deflation, and quickly becomes self-reinforcing. The need to combat this is one of the organizing principles underlying recent Fed and Treasury action(s).
At least in the housing market, there are steps you can take to mitigate the “risk” of missing out on even better prices tomorrow. For a nominal fee, many mortgage lenders offer a “re-lock” option that lets borrowers switch to a lower rate while their application is pending.