When Federal Reserve Chairman Ben S. Bernanke spoke recently of headwinds facing the U.S. economy, the top item on his list was housing.
“Previous recoveries have often been associated with a vigorous rebound in housing, as rising incomes and confidence and, often, a decline in mortgage interest rates led to sharp increases in the demand for homes,” Bernanke told the Economic Club of New York in late October. “But the housing bubble and its aftermath have made this episode quite different.”
The bursting of the housing bubble and near-collapse of the mortgage market is still reverberating across the economy — and across government efforts to enact more than rough patches to the housing industry in the wake of the 2008 financial crisis and the worst recession since the 1930s.
For the housing sector, the damage was crushing: Home prices and construction jobs decreased by almost one-third, and 4 million homes went into foreclosure as a result of the meltdown. After slow going over the past five years, however, the green shoots of a housing recovery are more visible. Home prices rose by 3.6 percent over the past year, the biggest jump in two years, and homebuilders have reported growing confidence for seven consecutive months.
Still, the housing recovery — and with it, the broader economy — faces a heavy drag, in part because many people are unable to refinance their mortgages and take advantage of historically low interest rates. Government efforts to spur more refinancing have been as halting as the country’s economic growth. Bernanke estimates that roughly 20 percent of existing borrowers owe more on their mortgages than their homes are worth, which makes it extremely difficult to refinance.Refinancing Renewed
President Barack Obama has pushed to allow more homeowners to refinance their mortgages, and some Senate Democrats are hoping related legislation will see action before the lame-duck session is out. But GOP opposition combined with a crowded legislative calendar make enactment in this session doubtful, leaving backers of more aggressive action on refinancing looking for other routes to repair a damaged business and, some believe, free up what could be many millions of dollars in homeowner wealth.
Economists of all stripes, and even Obama himself, have been disappointed in the results of the administration’s housing policies.
The Home Affordable Refinance Program, launched in 2009, was intended to help 4 million to 5 million Americans refinance their mortgages. According to the latest administration figures, however, only just over 1.6 million refinances have taken place through the program.