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Housing Market Suffers from Too-Tight Lending Standards: Bernanke

November 16th, 2012 · No Comments · Mortgages

Meredith Simonds

by Meredith Simonds

In an announcement that doesn’t bode too well for the economy, Federal Reserve Chairman Ben Bernanke said yesterday that the housing market is lagging behind where it needs to be for a fuller, faster recovery. Though housing prices are up, signaling a strengthening market, sales aren’t picking up too much speed. Why? Bernanke says it has everything to do with borrowers having trouble getting approved for home loans. It turns out the tighter lending standards we needed post-housing market crisis are a ball-and-chain these days on long-term economic recovery.

As reported by Reuters, Bernanke told the Operation HOPE Global Financial Dignity Summit:

It seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.

Then there are potential borrowers who aren’t bothering with loan applications at all, keeping cautious in this still-questionable economic climate, particularly relative to housing prices and the job market.

It’s also worth noting another factor that’s increasingly affecting the housing market – student loan debt. As I blogged in August:

Generation Y (also known as Millenials or Echo Boomers) is steeped in student loan debt. In fact, for many, it is their biggest expense. This combined with the rising cost of rent and unemployment makes it hard for Gen Y to save for a down payment on a house.

Only time will tell how the impact of these variables may change, but in the meantime the Fed will continue in its effort to boost the housing market via its purchase of $40 billion per month in mortgage-backed securities.

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