When ask about ‘How you feel rising interest rates over the last three months are going to affect the housing recovery going forward?
President Barack Obama said the following:
Just a little bit of historic context. What we saw in terms of the plunge in home prices in the midst of the Great Recession was something we hadn't seen in a very long time. And it hurt a lot of families. Homeownership is the quintessential element of the American Dream. It's what all of us understand when we say we want to have some middle class security.
And so what we did over the first three and a half, four years in my administration was throw everything that we could at helping homeowners who have seen their houses go under water to slowly build back that equity. With the help of the Federal Reserve, interest rates came down. And what we have seen is healing pretty much across the country when it comes to the housing market.
We've also seen a lot of refinancing activity, in part, because we modified some administrative rules so that folks who had Government guarantees could refinance even if they were under water and it saved people a lot of money up to $3,000.
We've seen interest rates now tick up. So far at least, though, the housing market has continued to be fairly robust. And there's been reporting just this week. Some of the data has come in showing that you're still seeing some good, steady growth. But I think that all of us recognize that it is still a soft housing market, in part, because it's still a soft employment market. There are still a lot of folks who are out of work. And the real economy is directly related to the housing market.
So what we've heard from the Federal Reserve Chairman is that he thinks it's important for interest rates to remain relatively low so long as unemployment remains high. That should continue to help the housing market. But given that interest rates tick up a little bit as the economy improves, it is especially important for Congress to act on the proposal that we put forward which says, let's not just let a few people refinance, let's allow everybody who is potentially eligible to go ahead and refinance.
It can end up being the equivalent of a $3,000 tax cut basically, money in your pocket, or alternatively as Andrew was talking about it gives homeowners an opportunity to start building back some of the equity in the home that they lost during the great recession.
Most of us when we buy our first home, we buy a start home. When Michelle and I bought our first home, we bought a condo and lived in it for about ten years before we then moved into a full-fledged standalone home. And the reason we were able to do it was because we both had some equity as well as got some raises and eventually we're able to get the down payment together for a larger house. It's tougher now, for folks who have lost their equity.
I can't say that that there is a magic formula in a situation that was just described in the place like New Orleans. On the one hand it's great that housing values have bounced back, on the other hand, most folks haven't gotten all their equity back if they purchased right in 2005 or 2004 right before the bubble popped.
What we do know is that if, number one, we keep interest rates low that will help. Number two, that keeping the overall economy moving in the right direction means that there is a stronger market for homes and the values of the existing starter home goes up.
The good news is that you’ve got a lot of potential families or families that put off buying a home during the midst of the recession and so if you look at the numbers the amount of new family formation is going to be increasing fairly rapidly.
There is going to be pent-up demand and potentially those smaller starter homes, they are going to increase in value as well. And one other things that we've been looking at is finally how could we make sure that more people whose homes are still under water can potentially benefit from the refinancing programs that we've talked about.