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The housing market is improving, but with loan requirements so stringent, even Ben Bernanke couldn’t refinance. What’s ahead for housing?
Former Federal Reserve Chairman Ben Bernanke can’t refinance his mortgage.
And I think that’s yet another sign that the housing recovery is just getting started. If you own a home, rental property, or homebuilder stock, you’ll want to read this.
In 2004, Bernanke and his wife Anna paid $839,000 for their house on Capitol Hill in Washington, D.C. As recently as 2007, it was reported that they still owed $730,000 on the mortgage.
Earlier this month, Bernanke told an audience, “I recently tried to refinance my mortgage and I was unsuccessful.”
How is that possible? Is the man broke?
Hardly. Bernanke now works for the Brookings Institution, and charges as much as $250,000 per speech.
With interest rates falling, now is a great time to buy a home or refinance a mortgage. A 30-year-fixed mortgage currently has an interest rate of 4%. That’s one-third less than the interest rate back in 2008.
Low rates have enticed lots of American’s to buy homes or refinance an existing mortgage.
But if the former head of the Fed can’t get approved for a re-fi, it’s probably pretty difficult for the average American.
This is a sign of the stringent lending standards at most banks. Prior to the housing crash, just about anyone could get a mortgage.
I remember the ads saying “Bad Credit? No income? No problem! You deserve to live the American dream. Call us today and we’ll give you a mortgage so you can buy your dream home!”
I recently refinanced a mortgage on one of my properties. And I will say that the process was much more rigorous than in the past. It seems the banks have learned their lessons about the cost of making bad loans.
But stricter lending standards and higher down payment requirements are keeping many potential homebuyers out of the market. And that’s helping to keep a lid on housing prices.
Now, you might think that home prices are rising. That’s because overall values are up 6.4% over the last year.
Yet the headline number highlights the overall change in home prices. But one analysis earlier this year shows that the most expensive 1% of homes saw their values jump 21% in the last year. Yet the other 99% of homes fell 7.6%.
The primary reason for is that many young people are choosing to live at home with their parents. They’re less likely to get married. And they’re not moving out and renting or buying a home.
What’s the reason? It’s not because the 25-year-old college grad suddenly think its cool to live in the suburbs with mom and dad.
It’s because even if she’s employed, she’ll have a heck of a time getting a mortgage.
Consider this for a moment: What would happen to housing prices if gainfully employed young adults could easily get a mortgage?
Home prices could soar. And new home construction could double to the level of one million new homes per year.
It’s only a matter of time before kids start moving out of their parent’s homes. Several years of low household formation is starting to turn around as the economy improves. As this happens, the housing market for lower priced homes will roar higher.
In my Million Dollar Portfolio newsletter advisory, I recently cashed in a 30% profit on high-end homebuilder Toll Brothers (NYSE: TOL). I’m still banking on the housing rebound with one of America’s biggest mortgage lenders. And I’m searching for additional opportunities to profit from this growth trend.
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