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S. HRG. 112–24 

THE STATE OF THE HOUSING MARKET 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE STATE OF THE HOUSING MARKET 

MARCH 9, 2011 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

ERIN BARRY, Professional Staff Member 

BETH COOPER, Professional Staff Member 

MICHAEL PIWOWAR, Republican Chief Economist 

JIM JOHNSON, Republican Counsel 

DAWN RATLIFF, Chief Clerk 

LEVON BAGRAMIAN, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

WEDNESDAY, MARCH 9, 2011 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 2 

Senator Reed ..................................................................................................... 4 

WITNESSES 

Susan M. Wachter, Richard B. Worley Professor of Financial Management, 

Professor of Real Estate and Finance, The Wharton School, University 

of Pennsylvania .................................................................................................... 6 

Prepared statement .......................................................................................... 25 

Mark A. Calabria, Director of Financial Regulation Studies, Cato Institute ..... 7 

Prepared statement .......................................................................................... 26 

David Crowe, Chief Economist, National Association of Home Builders ............ 9 

Prepared statement .......................................................................................... 31 

Ron Phipps, President, National Association of REALTORS® ............................ 10 

Prepared statement .......................................................................................... 36 

Jeffrey Lubell, Executive Director, Center for Housing Policy ............................ 12 

Prepared statement .......................................................................................... 38 

(III)

(1) 

THE STATE OF THE HOUSING MARKET 

WEDNESDAY, MARCH 9, 2011 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 2:32 p.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good afternoon. Thank you, everyone, for 

being here. I call this hearing to order. 

The housing market is in an incredible period of transition. Families are reeling from the impact of a bubble that burst several 

years ago. In many regions, prices have yet to stabilize. Realtors 

are struggling to find the appropriate balance between adequate 

credit availability and improving underwriting standards. It is 

clear that the current housing market is fragile, and a strong recovery in housing is not yet underway. And as we begin debating 

the future of housing in America, it is important for the Committee 

to understand the challenges our Nation faces. 

Today’s hearing is part of that process. We will explore various 

aspects of the housing market, including the impact of foreclosures 

on the single-family market, site built and manufactured housing, 

multifamily rental housing, and the availability of workforce housing. 

The housing sector remains in turmoil. Today we see decreasing 

property values eroding homeowners’ equity, rapid foreclosures, 

devastating neighborhoods, and a fall in home ownership rate that 

threatens to place the option of home ownership out of the reach 

even for qualified borrowers. 

According to the Case-Shiller Housing Index, home values have 

fallen to their 2003 levels. That has put record numbers of homeowners underwater on their mortgages, effectively trapped in 

homes they cannot sell. Meanwhile, widespread foreclosures compound the problem by driving down the value of other homes in 

neighborhoods. Losing one’s home to foreclosure often means the 

loss of the largest part of a family’s wealth and can create further 

instability in communities. Last but not least, an unemployment 

rate that remains near 9 percent has contributed to home ownership falling to a level last seen in 1998. 

The housing bubble peaks in 2006 and its aftermath left millions 

of American families underwater and struggling to cover their 

mortgage each month. 
2 

I look forward to hearing from our witnesses regarding how 

changes in foreclosure trends, the housing supply, and falling home 

values are interacting to affect the housing market and economic 

recovery. 

Today’s hearing will also explore the state of the housing market 

for middle- and lower-income households. The recession appears to 

have worsened the affordable housing crisis that already existed for 

so many Americans. A recent HUD study found that the number 

of very low income renters with worst-case housing needs increased 

by 20 percent from 2007 to 2009, the largest 2-year increase in the 

past 25 years. 

Finally, homelessness increased by 4 percent from 2008 to 2009, 

and the number of people doubled up in temporary arrangements, 

unfortunately a common occurrence in many Native American communities, increased by 12 percent. 

In the last 3 years, we have seen that no segment of the population is immune to problems in the housing sector, and it is clear 

that addressing these problems is an urgent need for Americans of 

all economic backgrounds. We hope to examine these trends and 

the causes today. 

As my colleagues know, we have noticed a hearing for next week 

with Secretary Geithner and Secretary Donovan. This will begin 

the long-term discussion regarding housing finance reform, and I 

anticipate many future hearings on this topic. I ask my colleagues 

to reserve specific questions on that topic for next week. 

Senator Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you. Thank you, Mr. Chairman, for calling this hearing. 

I hope this, Mr. Chairman, will be the first of many hearings by 

the Committee on the housing market and the housing policy. The 

well-known problems in the housing market deserve the Committee’s full attention. 

Over the past 3 years, national home prices have declined sharply from the unprecedented levels reached at the height of the housing bubble. Not since the Great Depression has our housing market 

experienced such a severe correction. Today we hope to learn the 

present state of the housing market and what the future may hold. 

How close is the market to bottoming out, for example? What 

will it take for home sales to reach normal levels? How does the 

housing market vary by region? And what factors account for the 

differences? What is the appropriate level of home ownership and 

why? 

In addition, it is my hope that today’s hearing will set the stage 

for a discussion of the future of housing finance. Without question, 

our housing finance system is broken. The Federal Government 

now backs approximately 97 percent of all new mortgages. Our 

once thriving private markets have been largely replaced by Government programs. I believe this is a dangerous situation that will 

not only erode innovation and competition, but ultimately reduce 

the availability of housing and expose taxpayers to future bailouts. 

The Banking Committee should fully examine our housing markets with the goal of promptly adopting any needed reforms. I be-
3 

lieve we will soon be upon the third anniversary of the American 

taxpayers’ bailout of Fannie Mae and Freddie Mac. If ever history 

provides a clear lesson on the importance of Congress acting in a 

timely manner, it is this Committee’s failure, I believe, to address 

the GSEs. 

The demise of Fannie and Freddie could have been prevented 

had the Committee acted sooner. Unfortunately, the GSEs were a 

very powerful political force right up until the time that they collapsed. Fannie and Freddie’s disproportionate influence on this 

Committee and Congress ultimately cost the taxpayers billions and 

should be long remembered as a major, major policy mistake. 

Finally, Mr. Chairman, I would like to take a moment to discuss 

recent news reports about a proposal that has been described as a 

‘‘global mortgage servicing settlement.’’ Based on the facts reported, 

I have serious concerns not only about the substance of the proposal, but also about the process. What is occurring appears to be 

nothing less than a regulatory shakedown by the new Bureau of 

Consumer Financial Protection, the FDIC, the Federal Reserve, 

certain Attorneys General, and the Administration, led by Elizabeth Warren. 

The proposed settlement appears to be an attempt to advance the 

Administration’s political agenda rather than an effort to help 

homeowners who were harmed by servicers’ actual conduct. 

Just last year, I warned that the new Bureau of Consumer Financial Protection would prove to be an unaccountable and unbridled bureaucracy. I did not expect to be proven correct so quickly. 

Under the guise of helping homeowners hurt by improper foreclosures, regulators are attempting to extract a staggering payment 

of nearly $30 billion for unspecified conduct. The $30 billion would 

most likely fund a new slate of housing programs long sought by 

the Administration but previously rejected by the Congress. 

Setting aside for a moment the attempt to end-run Congress, I 

question whether removing $30 billion in capital through a backdoor bank tax is the best way to jump-start lending in today’s recession. 

The long-term consequences of this settlement could be even 

more serious. It would politicize our financial system. For example, 

the proposed settlement requires the appointment of third-party 

monitors, paid for by the banks. Mr. Chairman, I thought our financial regulators monitored our banks. Under this incredible proposal, however, those days would be over. Who might these thirdparty monitors be? ACORN or other community organizers, or perhaps other special interest allies of the Administration? I believe 

we need to know; the American people need to know. 

As troublesome as the substance of the settlement is, the process 

by which it is being imposed is potentially far more concerning. 

The proposed settlement would fundamentally alter the regulation 

of our banks, yet this would be done without congressional involvement by this Committee. Instead, it would be done by executive fiat 

through intimidation and threats of regulatory sanctions. The Administration and our financial regulators are clearly hoping the 

banks will consent to these new regulations. 

The precedent these strong-arm tactics could set, however, 

should be of concern to all citizens, especially Members of this 
4 

Committee. If these tactics can be used successfully on financial institutions, they can be used on any business. 

I want to be very clear. If any person was harmed by the actions 

of these banks, I believe they should be compensated to the full 

limits of the law. As everyone knows, I did not vote to bail out the 

banks, and I strongly opposed TARP because I believe banks 

should be responsible for their actions. They should be held accountable here as well. However, efforts to help homeowners who 

were legitimately harmed by the banks should not be hijacked for 

the purpose of imposing a regulatory agenda the American people 

clearly rejected in the last election. 

Because of the longer-term consequences of the proposed settlement and the serious due process issues involved, I am requesting 

that this Committee begin an immediate inquiry into the facts and 

circumstances surrounding this effort. I am also requested that the 

Administration and our financial regulators refrain from entering 

into any settlement agreement until Congress, the Congress of the 

United States, has had an opportunity to conduct appropriate oversight on this matter. I think this is too important for Congress to 

sit on the sidelines. 

I hope you will heed this, Mr. Chairman. 

Chairman JOHNSON. Senator Reed. 

STATEMENT OF SENATOR JACK REED 

Senator REED. Well, thank you very much, Mr. Chairman, and 

thank you, Ranking Member Shelby, for inviting Ron Phipps of 

Rhode Island to join us today. Ron is the president of the National 

Association of REALTORS®, and he along with his colleagues in 

Rhode Island are a mainstay not only of our economy, but all of 

our communities, so thanks, Ron, for being here, and gentlemen 

and ladies, thank you also for being here today. 

We all understand that a sustainable economic recovery has to 

depend on a healthy housing economy, and we have seen great turmoil in the housing market over the last 2 years. I have looked at 

the testimony of our witnesses. Each one of them notes the fact 

that the swollen inventory of housing, made worse by homeowners 

facing foreclosure, is dragging on the economy. So the issues that 

have been discussed by the Chairman and by Senator Shelby about 

how do we resolve these foreclosure issues, how do we get these 

houses back on the market, how do we put a floor into our housing 

markets to begin to grow again is central not just to the housing 

sector but to our overall economic development. 

We also understand that this foreclosure crisis has grown with 

great complexity because of the allegations of robo-signing, illegal 

behavior of financial institutions, and poor supervision by regulators. We also understand, as alluded to by Senator Shelby, that 

the Attorneys General of each State have banded together and 

have taken the lead to protect their constituents and their neighbors and to provide them satisfaction. This effort was theirs, and 

it has been supplemented by the activities of the Federal regulators 

to try to develop a proposal that will deal with several intersecting 

and complicated situations: 

Were there illegalities with respect to foreclosure procedures? 

Simple issues about who holds title to homes, that is in doubt now, 
5 

which upsets the ability to grow the economy once again. The status of bond holders in these mortgage-backed securities, do they 

have an ability to sue for billions of dollars for breaches of representations and warranties? 

Until we try to resolve this, frankly, in a comprehensive way, 

there is going to be a drag on the economy, a reluctance to move 

forward, not just simply because of homeowners and financial institutions, but also a whole array of financial actors. 

In that spirit, I propose—and I am sure there will be other proposals—S. 489, the Preserving Homes and Communities Act of 

2011, to try to address some of these issues. I believe there should 

be a comprehensive solution. Legislatively, we should recognize 

that it will take probably—let me say it will not happen tomorrow 

because things do not happen around here tomorrow. And I think 

in substance and in fairness, there should be pursuit of some type 

of comprehensive solution, voluntary because that is the nature of 

the solution in which the financial institutions feel that it is in 

their interests as well as Federal regulators, State Attorneys General, bond holders, to come to conclusion and to do it rapidly. 

I think time is wasting. I think we should approach this with the 

view that every homeowner deserves to be treated fairly. Some may 

not be able to maintain their homes, but they deserve a fair evaluation of whether their home arrangement, their mortgage, could be 

modified and that they can get on with their lives either in their 

home or at least knowing that a fair effort was made to help them. 

With that, I thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Vitter. 

Senator VITTER. Thank you, Mr. Chairman. I am going to pass 

for now. I look forward to the testimony of the witnesses. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Mr. Chairman, I am going to defer. I know 

we are going to have a vote shortly. I would like to hear the testimony. And I was unaware that the Chair was going to permit 

opening statements, but I really want to hear the testimony. I have 

read some of it already. But since we are going to have votes, I will 

defer. 

Chairman JOHNSON. Does anyone have an opening statement to 

give? 

[No response.] 

Chairman JOHNSON. Well, then, two votes are scheduled for 3 

o’clock, and we should get going. 

I would like to introduce our first witness, Dr. Susan Wachter. 

Dr. Wachter is the Richard B. Worley Professor of Financial Management and Professor of Real Estate and Finance at the Wharton 

School. Dr. Wachter is the author of over 150 publications and is 

frequently called upon to testify before the U.S. Congress on mortgage markets and the financial crisis. 

Our next witness is Dr. Mark Calabria, who, in addition to being 

the director of financial regulation studies at the Cato Institute, is 

also a former staffer for this very Committee. Dr. Calabria has also 

served as Deputy Assistant Secretary for Regulatory Affairs at the 

U.S. Department of Housing and Urban Development prior to his 

work on Capitol Hill. We welcome you back to the Committee. 
6 

David Crowe, Ph.D., is chief economist and senior vice president 

at the National Association of Home Builders. Dr. Crowe is responsible for NAHB’s forecast of housing and economic trends, research 

and analysis of the home building industry, and consumer preferences as well as macroeconomic analysis of Government policies 

that affect housing. Welcome, Dr. Crowe. 

Our next witness is Mr. Ronald Phipps. Mr. Phipps is the president of the National Association of REALTORS®, representing 1.1 

million members involved in all aspects of the residential and commercial real estate industries. Mr. Phipps has previously served in 

many senior leadership positions within NAR. Welcome to the 

Committee. 

Jeffrey Lubell has been executive director of the Center for Housing Policy since 2006 and is the recognized expert in housing and 

community development policy. He has previously served as Director of the Policy Development Division in HUD’s Office of Policy 

Development and Research. Thank you for being here, Mr. Lubell. 

Dr. Wachter, will you proceed? 

STATEMENT OF SUSAN M. WACHTER, RICHARD B. WORLEY 

PROFESSOR OF FINANCIAL MANAGEMENT, PROFESSOR OF 

REAL ESTATE AND FINANCE, THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA 

Ms. WACHTER. Chairman Johnson, Ranking Member Shelby, and 

other distinguished Members of the Committee, thank you for the 

invitation to testify today. It is my honor to be here to discuss the 

current state of the Nation’s owner-occupied housing markets. 

At this time, housing markets for single-family owned homes are 

fragile. The most recent data available from Radar Logic’s Residential Price Index show that home prices continued their decline in 

January 2011, with prices down over 34 percent from peak values. 

For the fourth quarter of 2010, again, the most recent data available, the Census Bureau reports homeowner vacancy rates have increased, now at 2.7 percent, up from 2.5 percent in the third quarter of 2010. This is nearly 50 percent higher than the historical average vacancy rate for single-family homes. The consensus estimate 

is that home prices will continue to decline in the range of 5 percent to 10 percent in the coming months. This is due to unsold inventory plus remaining so-called ‘‘shadow’’ inventory. 

The expectation of continued price declines will in itself deter 

home buying. Thus, the most pressing issue in the housing market 

today is how and when the excess inventory of homes will be resolved. 

Although the supply overhang threatens to depress home prices 

further, national housing prices may not be far from reaching a 

bottom based on fundamentals. The national house price-to-rent 

ratio, as calculated by Case-Shiller, is near the level observed in 

2002 and 2003, which, given the low interest rates then prevailing, 

was not, I believe, significantly inflated. At today’s even lower interest rates, the current rent-price ratio, which is near that, is not 

inconsistent with a bottoming of housing prices nationally. Homes 

today are also affordable relative to income. According to the National Association of REALTORS’® Housing Affordability Index, a 

family earning the median income has 185 percent of the income 
7 

needed to purchase a median-priced home. Of course, that leaves 

aside major issues of ability to qualify. 

But, nonetheless, in the short and intermediate run, the big 

threat facing the housing market is the uncertainty surrounding 

the supply overhang. Assuming household formation rates do return to their historic levels—and they are way beneath that as of 

now—the excess vacancy could be absorbed—and I emphasize 

‘‘could be’’—in 3 years so that it is possible that by 2014 markets 

could reach equilibrium, nationally. But in the short and intermediate run, a slowing of job growth, a rise in interest rates, or a 

decline in the availability of credit would delay this and could 

cause further price declines or even a spiral of price declines. 

With or without stabilization of prices, distressed properties will 

continue to account for a large proportion of total sales in the markets. Recovery will depend upon continued strengthening of job 

markets and increased consumer confidence. For the incipient recovery to take hold, the availability of financing is also crucial. 

Given the policy questions before this Committee, it may be useful in ending to comment briefly on the broader issue of housing 

finance. Borrowers who qualify for home loans are able to access 

historically low mortgage rates for 30-year, fixed-rate loans, which 

is helping to shore up the market. Questions about whether such 

mortgages will be available or what will replace them are likely to 

be an additional and, going forward, increasingly important factor 

creating uncertainty in housing markets. The housing finance system in the future that is yet to be created will be less vulnerable 

to economic disruptions affecting the ability to refinance if borrowers continue to have access to the standard fixed-rate mortgages that are not subject to refinance risk. 

With that, I thank you and I am open for questions. I appreciate 

it. 

Chairman JOHNSON. Thank you, Dr. Wachter. 

Dr. Calabria. 

STATEMENT OF MARK A. CALABRIA, DIRECTOR OF FINANCIAL 

REGULATION STUDIES, CATO INSTITUTE 

Mr. CALABRIA. Chairman Johnson, Ranking Member Shelby, and 

distinguished Members of the Committee, I want to thank you for 

the invitation, and it really is a pleasure to be back here at this 

side of the table for a change. 

I want to start with saying you are going to hear a lot of predictions about and a lot of discussions about where the housing 

market is at and where it is going, and I largely agree with those. 

I think there is a consensus about where the market is at. I think 

there is a consensus about the fragilities, and I think there is some 

consensus about direction of prices. I have touched on that in my 

testimony, so rather than repeat what everybody else will say, I 

think I will spend my time talking about my points of departure 

with other witnesses, and that is not to minimize the points of 

agreement. 

First, I think we need to keep in mind you cannot fight fundamentals. I think to a large degree we spent the last 4 years trying to keep prices above what they should be in terms of market 

clearing levels. Ultimately prices will get to where they are going, 
8 

and that is driven by households and it is driven by income more 

than anything else, and we are seeing it get there. 

I want to see if I can submit for the record an article that was 

in Bloomberg yesterday, and I think the title says it all: ‘‘U.S. 

Home Sales Accelerate as Price Decline Rebound.’’ And I think the 

point that I would like to make is housing markets work like every 

other market. If you want to clear excess inventory, prices have to 

come down, and that is the way we need to do it. 

A point I also want to make as well is while we have seen stabilization at the national level, there are tremendous differences 

across localities. While again we see median homes prices to median incomes around three, that is a historic trend, and that is, I 

think, a healthy trend, and that is where a healthy market is at. 

In San Francisco, that multiple is still eight. So there are a number 

of markets that are still relatively unaffordable, and the importance, I think, of this is that almost all the Federal policies we 

have, whether it is Federal Reserve interest rate policy, whether it 

is homebuyer tax credits, act through the demand side of the market. And the reason that this is important is that in markets with 

very rigid supply if you think back to your Econ. 101, essentially 

an inelastic supply curve, the demand forces prices up, and markets where you can bring supply on quite easily, you end up having 

excess supply. I think this is best illustrated—I talk about this in 

my testimony. Phoenix and San Diego are essentially the same 

size, yet San Diego over the last year has seen price increases, a 

bit minor, whereas Phoenix has seen an 8-percent decline. Part of 

that is driven by, despite the similar population and migration 

trends, the number of building permits in Phoenix is over twice 

that in San Diego. So local conditions very much matter. We cannot 

lose sight of that. And I am concerned that what looks like a stabilization at the national level is really just an offsetting of what 

is going on in very different markets, and that is something to keep 

in mind. 

The other point I want to make in terms of the foreclosure crisis 

is we need to keep in mind negative equity alone is not the cause 

of most delinquencies. It is almost always coupled with a life event, 

like a job loss, or health care costs. Yes, there is some degree of 

strategic defaults which are those that just simply walk away because the house price has declined. I think those are under 25, 20 

percent, and I do not think this should necessarily be the focus of 

policy. So I do think we need to be concerned about solutions that 

focus solely on negative equity. 

I think we need to be worried about impacts of our housing policies and our home ownership on labor markets. It is well appreciated that the higher your home ownership rate, usually the higher you have structural unemployment. So I think about a percentage point of the unemployment rate we are seeing today is a direct 

result of the high home ownership rate we had going into this crisis combined with the foreclosure assistance programs and the 

other things in the marketplace that delay this. 

I would also say in terms of a balancing of it, I think the risks 

are much greater if we keep prices above market clearing levels 

than they are if we allow prices to overshoot on the way down. And 

there are certainly risks if we allow them to overshoot on the way 
9 

down. But I want to echo something that Dr. Wachter said, which 

is the expectation of further price declines can have a considerable 

impact on keeping homeowners on the sidelines. We are far better 

in terms of turning the market around if we get to the point where 

buyers believe prices can go no further down. In my opinion, we are 

not there yet. 

I want to close with saying I am greatly concerned, as I am sure 

Members of the Committee are, that the taxpayer stands behind almost all credit risk in the mortgage market. We are potentially 

looking at further bailouts. I think this is incredibly unhealthy. I 

think we recognize under all the Administration’s three proposals, 

interest rates will go up. And they will, of course, go up because 

of inflation and Federal Reserve policy. We need to prepare for that 

now, and I think we need to move away from the sense of having 

the market not take this risk and pass it on to the taxpayers. As 

I note in my testimony, there is a tremendous amount of capacity 

outside of the GSEs in the rest of the financial services industry, 

and I am happy to go into further detail on that in Q&A. 

With that, I thank you again, and I look forward to the discussion. 

Chairman JOHNSON. Thank you, Dr. Calabria. 

Dr. Crowe. 

STATEMENT OF DAVID CROWE, CHIEF ECONOMIST, NATIONAL 

ASSOCIATION OF HOME BUILDERS 

Mr. CROWE. Thank you, Mr. Chairman. My name is David 

Crowe. I am the chief economist for the National Association of 

Home Builders, a trade association of roughly 160,000 members 

who work in the residential construction industry. I appreciate the 

opportunity to testify today on the condition of the Nation’s housing markets and the prospects for recovery in the housing sector. 

The state of the Nation’s housing market is improving but fragile. While the bottom of the market is behind us, the road to a robust recovery for housing remains a long and difficult path. High 

unemployment, unavailable buyer and builder financing, and consumer uncertainty are challenges for the home building sector. 

A weakened housing sector will hold back economic growth. Traditionally, housing has led the U.S. economy out of recessions. In 

previous recoveries, housing grew at 28 percent in the first year of 

the recovery. In this recovery, housing has grown at less than 5 

percent. 

Construction unemployment remains the highest of any major 

area of the economy, with more than 1.4 million jobs lost in residential construction and an equal amount lost in the building supply sector. 

National housing prices stabilized in early 2010, but have weakened due to the elevated share of distressed sales. However, in 

many areas the ratio of house prices to income has returned to historic levels, and on a national basis, the price-to-income ratio has 

returned to its historic average. I think Dr. Calabria mentioned the 

same. 

Currently housing production is running around 600,000 units a 

year, well below the long-run trend of about 1.7 million new homes, 
10 

that are necessary to accommodate population growth and replacement of older housing stock. 

The gap between current production and trend housing construction is a result of multiple factors. First, the excess existing home 

inventory has held back prices and construction of new homes. 

Nevertheless, the inventory of existing homes has fallen from over 

a year’s supply to about an 8-month supply. Inventories of new 

homes for sale are at a 42-year low, and the ready-to-occupy new 

homes stand at an all-time record low of 78,000. 

Foreclosures remain a drag on prices and demand and are likely, 

not unlikely, to fade. However, foreclosures remain concentrated 

with very high rates in six States that hold almost half of the foreclosure inventory. One promising sign is the pent-up demand from 

delayed household formations. Young people in particular have not 

moved out of their parents’ home or have remained as roommates. 

NAHB estimates that approximately 2 million household formations have been delayed. These households constitute a shadow demand that will be unlocked as the economy improves. 

Finally, and most importantly, in terms of the long-run health of 

the home building industry, lack of financing available to small 

builders is holding construction back where demand exists. Small 

businesses are at the heart of the residential construction sector 

who typically rely on debt financing. For such firms, the credit 

crunch persists and lending conditions are as tight as ever. As a 

result of these factors, near-term outlook for new construction remains cloudy. 

These sobering signals have persisted despite record high housing affordability and historically low mortgage interest rates. Yet 

tight buyer finance and challenges with appraisals means housing 

demand remains at low levels. 

NAHB forecasts that new home sales and housing production 

will remain weak in the first half of 2011, pick up slightly in the 

second half of the year, and build some momentum into 2012. 

Given this weak but improving market environment, NAHB urges 

Congress to approach housing policy issues with caution. For builders, these policy issues include providing a secondary mortgage 

market that ensures a reliable and uniform credit for homebuyers, 

preservation of the mortgage interest deduction and other housing 

tax rules, and unblocking the AD&C lending channels to permit 

home builders to contribute to the economy where and when demand exists. NAHB will soon present legislative proposals to ensure adequate credit availability to builders. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

Chairman JOHNSON. Thank you, Dr. Crowe. 

Mr. Phipps. 

STATEMENT OF RON PHIPPS, PRESIDENT, NATIONAL 

ASSOCIATION OF REALTORS®

Mr. PHIPPS. Chairman Johnson, Ranking Member Shelby, and 

Members of the Committee, thank you for inviting me to testify 

today regarding the current state of the Nation’s housing market. 

My name is Ron Phipps. I am the 2011 president of the National 

Association of REALTORS®, and I am proud to be part of a four- 
11 

generation family owned residential real estate business based in 

Rhode Island. My passion is making the dream of home ownership 

available to American families. I am proud to testify today on behalf of the 1.1 million REALTORS® who share that passion, but 

also the 75 million Americans who own homes and the 310 million 

Americans who require shelter. 

Most Americans understand the value of home ownership and aspire to it. They measure their personal financial wellness in large 

part in terms of home ownership and the equity they have within 

that home. Owning one’s home is the first commandment of selfreliance for most families. 

So what is the state of housing? In a word, a word you have 

heard repeated, it is fragile. The housing climate continues to be 

erratic. Mortgage rates have jumped from the exceptionally low 

rates of last year and have risen slightly, and we expect them to 

go a little bit further. 

But the consumer malaise continues to prevail in the overall 

economy, effectively retarding the housing recovery. NAR believes 

that the economy may not be able to rely heavily on those consumers with stable jobs to help the overall economic recovery. 

Thanks to some job creation, existing home sales will likely see 

improvement in 2011. However, changes in the median home price 

will be determined by how fast the inventory is worked off. Assuming that the pace of home sales can hold at near 5.3 million units 

this year, then the industry absorption rate of inventory should 

keep home values broadly stable. This should help absorb some of 

the distressed shadow inventory that will be coming to the market. 

As we consider the future of Federal housing policies, we must 

keep in mind the immense value that sustainable home ownership 

provides to our country. Aside from the financial benefits gained 

over many years, home ownership improves communities, increases 

civic participation, and improves student test scores. These are 

benefits that make home ownership a pillar of society. 

What makes home ownership a pillar of our economy is its ability to create jobs. Our research suggests that 1 million additional 

home sales in 2011 can create 500,000 additional private sector 

jobs. So while housing alone may not pull us out of this stalled 

economy, hampering its recovery will severely negatively impact 

the overall economic recovery. 

REALTORS® believe that the pendulum on mortgage credit has 

swung too far in the wrong direction, and it is hurting consumers 

and the economy. The harmful products that led to the bubble and 

the crash are gone, and no one wants those to be brought back. But 

it is making it harder right now for those who can afford to obtain 

safe mortgages to further the recovery. 

Let us be clear. REALTORS® agree that reforms are required to 

prevent a recurrence of the housing market meltdown, but unnecessary raising of down payments and other mortgage costs will 

have stark ramifications for the overall economy. REALTORS® believe that Federal regulators should honor the congressional intent 

by crafting a qualified residential mortgage—that is, QRM—exemptions that include a variety of traditional safe, well-underwritten 

products for 30-, 15-, 10-year fixed rates and 7–1 and 5–1 ARMs, 

those loans with flexible down payments, and they would require 
12 

mortgage insurance. It is likely to shape housing policy for the future. It is very important. 

The QRM is also a precursor for the future of GSEs and is likely 

to be eligible for securitization. A poor QRM policy that does not 

heed the congressional intent will displace a large number of potential homebuyers, which in turn will slow economic growth. 

Further, increases in fees from both FHA and the GSEs and 

credit overlays will make it more difficult for people to finance. Ten 

to 15 percent of qualified purchasers are being precluded from obtaining mortgages. And, remember, every two additional closed 

transactions generates 500,000 additional sales and can actually 

produce 250,000 jobs. 

During World War II, President Franklin Delano Roosevelt said 

that a Nation of homeowners is unconquerable. In the 1980s, President Ronald Reagan advocated the need to preserve the mortgage 

interest deduction in order to promote the most important aspect 

of the American dream—home ownership. America’s realtors agree. 

We see a bright future for housing with America. We ask you, Congress, to maintain a positive, aggressive, forward-looking approach 

to overcome the obstacles we currently face and ensure that housing and the national economic recoveries are sustained. 

I thank you for the opportunity to speak today. As always, the 

National Association of REALTORS® is ready, willing, and able to 

work with Congress to create a bright future for our children and 

grandchildren. 

Thank you. 

Chairman JOHNSON. Thank you, Mr. Phipps. 

Votes have just been called. Because we have two votes, the 

Committee will recess for a short time and resume the hearing 

after the votes. 

[Recess.] 

Chairman JOHNSON. Mr. Lubell, will you please proceed? 

STATEMENT OF JEFFREY LUBELL, EXECUTIVE DIRECTOR, 

CENTER FOR HOUSING POLICY 

Mr. LUBELL. Thank you, Chairman Johnson, Ranking Member 

Shelby, and distinguished Members of the Committee, for the opportunity to testify. My name is Jeff Lubell. I am the Director of 

the Center for Housing Policy, a research organization based in 

Washington, DC. We are the research affiliate of the National 

Housing Conference, a nonprofit policy organization dedicated to 

helping ensure safe, decent, and affordable housing for all Americans. 

I have been asked to focus on the state of the housing market 

faced by working and lower income Americans. I am going to try 

to do it with the aid of some illustrations here. The bottom line is 

that despite the housing market decline, in terms of home prices, 

housing affordability for low and moderate income families has actually worsened. 

So I know it is counterintuitive, but I will explain why basically 

lower home prices primarily benefit those Americans who have 

bought a home in recent years. If you have stayed where you are, 

or if you are a renter, things have actually gotten worse, and the 

reason is that incomes have gone down, home prices have only gone 
13 

down slightly, about 1 percent for working families, whereas rents 

have gone up. 

So costs go up, incomes go down, the number of Americans with 

severe cost challenges increases. I have here a figure from HUD’s 

Worst Case Needs Report, which Chairman Johnson cited in his 

testimony, his opening statement. 

As of 2009, 7.1 million renter households have worst case needs 

for housing. That means they spent more than half their income for 

housing, lived in severely substandard housing, and had very low 

income rents and did not receive rental assistance. That is an increase of 20 percent in just 2 years, and an increase of 42 percent 

since 2001. 

The primary factors are falling incomes, increased competition 

for affordable units, along with limited availability of rental assistance. But housing affordability challenges are not confined to renters and not confined to the very lowest income families. Next slide, 

please. 

We recently released a study looking at working households. 

These are households working at least 20 hours or more per week 

with incomes up to 120 percent of the area median income. This 

is a group of Americans, more than 40 million households. It is 40 

percent of the market. 

Nearly one in four paid more than half of their income for housing costs. One in four working families spent more than half of 

their income for housing costs in 2009. That is 10.5 million households nationwide, an increase of 600,000 households in just 1 year. 

As this table shows, there were increases in the share of working 

households with severe housing cost burdens throughout the country. Basically, costs went up by a statistically significant amount 

in 25 States. Those are the States that are shaded blue. They include Alabama, New Jersey, North Carolina, and Tennessee. There 

were—— 

Senator SHELBY. Say that again about my State and others. 

Mr. LUBELL. Sure, sir. The share of working families who spent 

more than half of their income for housing went up by a statistically significant amount in those States, 25 States. They went 

down by a statistically significant amount in no States. So there 

were increases in other States, like in Hawaii, but because the 

numbers were not large enough, they were not statistically significant. 

Senator SHELBY. And why did they do that? 

Mr. LUBELL. Why did they go up? 

Senator SHELBY. Lack of income, lack of opportunities? 

Mr. LUBELL. So the reason that those numbers went up is that 

incomes went down, people had less opportunity for work, and 

rents went up. And owner costs went down only slightly, only 1 

percent. So you have to distinguish. We talk about affordability in 

the market. That is for new housing. Very few people are moving. 

Most people are staying where they are. And for them, the problem 

has actually gotten worse. 

As shown in the next chart, the housing cost challenges affect a 

broad range of family types. They are split almost evenly between 

renters and owners. So basically, we have housing cost challenges 

among owners as well as among renters. They are most prevalent 
14 

among families at the bottom of the income scale, but they are experienced by families across the spectrum, including families with 

incomes between 80 and 120 percent of the median income. So we 

have problems across our income spectrum. 

My testimony includes some specific numbers about rural communities. We have very significant housing challenges in rural 

communities, and we had an increase of about 3 to 4 percent in the 

number of homeless families between 2008 and 2009. 

I do want to make a really quick point in my last 20 seconds 

about the impact of rising energy prices. The cost of living in a 

place is affected not just by your shelter costs, but also by your 

utility costs and also by your transportation costs. As energy prices 

rise, affordability is going to get worse, and there is a huge connection between housing and transportation costs. They are related. 

Families think about them and treat them as a single budget item. 

If we want to address this, we are going to have to think about how 

to improve our coordination of housing and transportation policy to 

try to reduce the combined costs and improve overall affordability. 

I will look forward to your questions, and thank you for the additional time. 

Chairman JOHNSON. Thank you, Mr. Lubell. 

Dr. Wachter, can you discuss the structural barriers to the housing recovery that may exist in the financial system? 

Ms. WACHTER. There is, right now, of course, a great deal of uncertainty about the future structure of the housing finance system. 

While that may not be weighing on housing prices at this moment, 

as we go forward, that is likely to be an increasingly important factor in the uncertainty of the future of housing prices. 

I would like to reiterate that housing is different from most commodities and goods in that it is an asset. This price is determined 

by households’ expectations of the future. So, for example, future 

scarcity of housing finance would impact housing prices today. 

Chairman JOHNSON. Mr. Lubell, are there barriers to financing 

affordable rental housing in the current market? If so, how can 

these be overcome? 

Mr. LUBELL. The short answer is yes, there are barriers to financing affordable housing, particularly affordable rental housing, 

but also, owner-occupied housing. To some extent, they are starting 

to resolve themselves. The market for equity, for example, in lowincome housing tax credits has rebounded, but there continues to 

be difficulty on the debt side. 

One of the things that is really helping is the availability of credit through Fannie Mae and Freddie Mac. I know it is not popular 

these days to talk about the benefits of those entities, but one of 

the things that those entities are doing is helping to ensure the 

availability of credit for affordable rental housing, particularly at 

a long-term fixed rate of interest, which is extremely important for 

financing and affordable property. 

And those entities and their lending has actually, on the multifamily side, on the multifamily side has not incurred the same 

losses that we have seen on the single family side. So it is just important to understand that. 

I do think that one of the problems we have is that the number 

of families that need assistance, in terms of affordable housing, has 
15 

gone up, as shown by these charts, and there is just not enough 

subsidy available to fill the gap between what the market can pay 

and the cost of actually building those homes. And so, that is something that I think is of continued interest as we think about how 

are we going to meet the growing challenge of affordable housing 

in America. 

Chairman JOHNSON. Dr. Crowe and Mr. Phipps, you discuss the 

idea that potential homeowners are not entering the market and 

are creating a shadow demand. Would you explain what factors 

would bring that demand out of the shadows to help absorb the excess housing supply? First, you, Dr. Crowe. 

Mr. CROWE. OK, thanks, Senator. Several things. One is jobs. 

Young people who have not yet moved out of their parents’ home 

or have remained as roommates are unable to because either they 

do not have a sufficient income or they have no income. And so, 

return of consistent job growth will be the first thing. 

And the second thing is some clarity about where the housing 

market is going. I think Jeff is correct that we are going to continue to see rent increases because we are not building enough 

rental units to keep up with the demand, so rents are going to go 

up. That is going to retard the continued delay in household formations. And as house prices remain uncertain, that is going to retard 

those folks from moving into a home because they do not want to 

buy a home, as Susan mentioned, until they are sure of the longterm sustainability of that house price. 

Chairman JOHNSON. Mr. Phipps. 

Mr. PHIPPS. Senator, the interesting thing to me when we testified is that four of us used the word ‘‘fragile’’ to describe the market. I am struck by the part where we say handle with care. The 

problem is, is that media treats real estate as a single market 

across the country. It is all local. One of the things we need to get 

back to is what is really going on in the local market and understand that the financing sources are, in fact, national. 

But the challenge that we are faced with right now is a lot of 

people who should be able to obtain financing are not able to. 

When Fannie and Freddie now have credit scores that average 60 

up from 720, we have got 15 percent of the market that could help 

absorb that shadow inventory. 

There is a second piece of the shadow inventory—in some ways, 

we would like to get it out there and resolve it so we can go back 

to a normal, stable, dynamic market, but there is an opportunity 

for short sales in the market which just has not been realized in 

an effective way, that is clearly better for the investor and actually, 

in most instances, better for the family. The investor ends up losing 37 percent of principal on average versus 50 percent. But the 

process of getting a short sale approved in a timely, human fashion 

is just nonexistent. 

The final point I would make is that we need understanding of 

mortgages and finance universally. It needs to be something people 

understand, and I believe the consumer understands their house 

and understands what they are buying, but they still have great 

difficulty understanding what the 100 or 150 pages of documents 

they sign at closing, which, by the way, you need to sign these now 

or you will not get the house. 
16 

That process of understanding and comprehending what happens 

is really important in order for us to get back to a normal, informed market. At the end of the day, we need to get through the 

overhang, we need to have that excess inventory resolved so the 

market does what markets do, and frankly, there will be price stabilization when we get beyond that. 

Chairman JOHNSON. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. Dr. Calabria, some 

housing interest groups have called for more regulations to govern 

the foreclosure process which would lengthen the time to complete 

foreclosures. Some have even called for a foreclosure moratorium. 

What would be the consequences, in your opinion, of these policies 

on the housing market and the economy. 

Mr. CALABRIA. In the aggregate, we would be delaying the adjustment of the housing market to reaching an equilibrium of getting the inventory out of there. So I am very concerned that while 

we need to deal with those who can be helped, the vast majority 

of those who cannot be helped, we need to move that quicker. It 

is also important to keep in mind that somewhere from 30 to 40 

percent of the foreclosures are on vacant properties, so those properties do not do anybody any good sitting there in those neighborhoods vacant. 

So I would actually say what we need to have is more of a twotrack approach where we focus on families that can be helped, but 

those who we know who are not going to be able to be helped and 

stay in the unit they are in, are the units vacant, that needs to be 

sped up and that process needs to be quicker. 

I also want to comment very quickly on a couple of things that 

the Chairman mentioned, which is, we need to keep in mind that 

we all want to get back to a normal market, but we need to remember 2005 and 2006 were not normal markets and we do not want 

to go back to that. 

Senator SHELBY. They were housing bubbles, were they not? 

Mr. CALABRIA. They were housing bubbles and I believe Professor Wachter mentioned and I agree with this, that about 2002– 

2003, that was more like a normal market except for the massive 

refinance boom in 2003. 

Senator SHELBY. And the chances of us going back to that are 

pretty slim, I hope. 

Mr. CALABRIA. In the short term, yes, but this is a country where 

we have had a long history of housing bubbles, every 10 to 15 

years, so I hope that we have learned something this time around, 

but I am not convinced of it. 

Senator SHELBY. Dr. Calabria, has the force of the prospective 

homeowner been lost in the discussion of what the Government can 

do in mitigating mortgage foreclosures? 

Mr. CALABRIA. I think that this is an important point. I certainly 

have friends who tried to buy short sales and homes that were in 

foreclosure and had those transactions fall through. This is an important thing to keep in mind, which is, any time we try to push 

up prices artificially, we are simply transferring wealth from potential buyers to sellers, and I certainly do not think that is a legitimate process. 
17 

Senator SHELBY. And we are interfering in the market, aren’t 

we? 

Mr. CALABRIA. We are, we are. We have to have the market find 

a price. I would reiterate, to me, the fundamental way of getting 

that pent-up demand out there is to get prices to a point where 

buyers just do not believe they can go any further down. 

Right now I would have concern that potential buyers feel like 

if they buy something today, they will lose money on it, so there 

is a little bit of wait-and-see. We need to get past that point where 

the only direction for prices to go is up and we are not there yet. 

Senator SHELBY. Dr. Crowe, in your testimony, you state that the 

National Association of Home Builders urges Congress to agree to 

definite solutions regarding the future of the Government-sponsored enterprises. Except in the need for a reasonable transition 

period and understanding the deliberative nature of Congress that 

we are a part of, would you agree that Congress needs to begin considering how to reform our housing finance system now? 

Mr. CROWE. Senator, the simple answer is yes, we do need a solution to this. However, we do need to understand the fragile nature of our housing market and have the transition. And I would 

also say that the NAHB also supports some ultimate backstop by 

the Federal Government in order to maintain a 30-year, fixed rate 

mortgage in this country. 

Senator SHELBY. I want to get into the HAMP program. The 

HAMP program was promoted by President Obama as a way to 

help 3 to 4 million struggling homeowners. To date, the program 

has put only 522,000 people in permanent loan modifications. By 

contrast, nearly 800,000 people have dropped out of the program. 

This is significant, I think, and it is disturbing because as Special Inspector General Neil Barofsky of TARP recently pointed out 

in testimony before the House Financial Services Committee, and 

I quote, he says, ‘‘Failed trial modification often leave borrowers 

with principal outstanding on their loans and less home equity, depleted savings, and worst credit scores.’’ 

Dr. Calabria, do you agree with Mr. Barofsky’s analysis there? 

Mr. CALABRIA. I think Inspector General Barofsky is 100 percent 

correct in this, and I think we do need to be concerned that many 

of the people who have been through these modification programs 

come out worse than they have gone in. I think it is also important 

to keep in mind that we simply have not, and the Administration 

or even the last Administration, either has not put forth a baseline—we do not have a discussion over who should we be helping, 

what is a reasonable number, what is a reasonable expectation. 

Senator SHELBY. Is that a good use of taxpayers’ money? 

Mr. CALABRIA. I question whether it has been used effectively. 

Senator SHELBY. OK. Mr. Phipps, in your testimony you stated 

that frequent increases in fees from both FHA and the GSEs and 

credit overlays from lenders will unnecessarily increase the cost to 

home buyers and discourage these consumers, who can otherwise 

afford the mortgage, from participating in the housing market. 

In both cases, these were existing fees designed to protect the 

taxpayer. If these reasonable fee increases deter a consumer from 

buying a house, does this not indicate that the person is better off 

renting, perhaps, and do you support charging actuarially sound 
18 

fees at FHA and the GSE to prevent further Government bailouts, 

in other words, the hit on the taxpayer? 

Mr. PHIPPS. Senator, the short answer is that we believe the 

FHA serves a specific purpose and it is to fill a void in the market 

that is a larger percentage than it has historically. There have 

been actually several increases recently on FHA. Each time the increases for the threshold becomes higher. 

There has to be a balance between cost and benefit, and we actually welcome that conversation and that analysis. But in the short 

answer, we think that the stepping up of cost needs to really reflect 

the demand that the market will support. And if you raise that 

first level of the ladder too high and people do not get on it, then 

we have further comprising of overall value. 

So it is woven. It is absolutely woven. We would like to get back 

to a normal market where people who can sustain the mortgages 

have access to mortgage money to enjoy the gift, the benefit of 

home ownership. 

Senator SHELBY. Mr. Chairman, I have one last question, if you 

will indulge me. 

Dr. Calabria, in your testimony you state, and I will quote, ‘‘Unemployment is the primary driver of mortgage delinquency.’’ Previously this Committee heard testimony from Dr. Paul Willen of 

the Federal Reserve stating, and I will quote him, ‘‘When home 

prices fall, some bars can no longer profitably sell and then the income disrupting life events really take a toll.’’ 

One of the life events Dr. Willen referenced that day was unemployment. Does this analysis mean that the best way—and there 

are other ways—but the best way to help homeowners is to spur 

economic growth? 

Mr. CALABRIA. I would absolutely agree with that. I think a significant amount of the problems in our housing and mortgage markets would go away if we brought unemployment down significantly. 

Senator SHELBY. Do you disagree with that, Dr. Crowe? 

Mr. CROWE. No, Senator. 

Senator SHELBY. What about you, Dr. Wachter? 

Ms. WACHTER. Employment growth is a major driver and, in fact, 

we need it to strengthen in order to have a housing market recovery. 

Senator SHELBY. OK. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. And thank you 

all for your testimony. I want to talk about liquidity in the marketplace. It seems to me, and I would like to get your perspectives on 

this, how do we get banks to commit to lending for real estate 

projects again? Particularly, you know, right now it seems to me 

that except for a very high asset class, for example, which attracts 

institutional investors in like the luxury high rental markets, certainly in our area in New Jersey, other than that, you have underwriting criteria on lenders where projects that are performing, borrowers that, in fact, have current debt service, fully current, and 

have not had a blip in that process, ultimately finding themselves, 

because they do not appraise today at the level of the loan closing 
19 

totally stopping projects in the midst of a project, even though the 

loan is performing. 

So I look at that liquidity issue and I look at the flip side of the 

liquidity issue on the consumer side and see the changes in the underwriting criteria. We certainly understand legitimate changes to 

ensure that we do not have people buying homes they cannot afford. 

But by the same token, you know, if we have had a 25 percent 

drop in real estate values, but you could get 10 percent down, 

based upon your income, and that would be, you know, take whatever price level you want of a $400,000 home, which is $40,000. 

Now you have to put 25 to 30 percent down, so that is anywhere, 

you know, nearly $100,000. I do not know how many people have 

$100,000 to put down on a home. 

So I am wondering, from your perspective, how do we deal with 

this challenge of the liquidity crisis both for the actual movement 

forward in the market by those who develop it and on the consumers who seek to purchase it? 

Mr. CROWE. I would like to take the first stab at that, Senator. 

I appreciate the question. On the production side, on the builder’s 

side, the builders are having that difficulty. We have been surveying builders for 6 or 7 years, through the boom and into the 

bust, and what we find is a greater and greater percentage of them 

are being turned down at financial institutions, and that is their 

source of loanable funds. 

Builders are small companies and they go to small banks to borrow the money to build the houses to sell to their customers, and 

they cannot get that money. We have gone to the regulators and 

we say, ‘‘There is something strange here.’’ We do not see any differentiation in banks’ response between the markets that are in 

good shape and the markets that are not. We understand why the 

bank might say no in the market that is overgrown with excess inventory, but we do not understand why they are saying no in a 

market that is showing some signs of recovery and people want to 

buy a house. 

And we do not get satisfactory answers from the regulators. So, 

in fact, NAHB will be presenting legislation that we hope you will 

consider that speaks to some of these regulatory overreactions, 

things like making guidelines absolutes so that the regulator has 

guidelines and yet they have turned them into absolutes so there 

is no breaking those barriers. 

Or evaluating properties, developed properties at their distressed 

level instead of at their build-out level. There will be that buildout level eventually, but we cannot seem to convince examiners 

that that will correct itself as that market corrects. 

Requiring a payoff of a loan when it is current, but the sell rate 

has not been the same as it should have been, and therefore, the 

bank has suddenly decided that they want their money back even 

though the builder is making regular payments. They just do not 

have the same sales rate as they promised. 

And then finally, we would like to see the SBA loan system more 

friendly to home builders. It is not a useful program to home builders right now. 

Senator MENENDEZ. Anyone else? Mr. Phipps? 
20 

Mr. CALABRIA. If one starts with the observation that many 

banks tend to essentially be spread lenders, you know, we all recall 

the sort of borrow at three, lend at six, and be on the golf course 

at three. Well, that is no longer really the case, but there is a degree of truth to it. My point being is that if we also start with the 

observation that despite the financial crisis, insured depositories, 

their balance sheet has actually increased throughout this crisis, 

and insured deposits actually increased. 

What they have done, however, is greatly change what they are 

holding on their balance sheet, and part of this is their incentive. 

We have set up a situation where you could essentially borrow 

from the Federal Reserve at near zero, put it in treasuries, earn 

a very nice spread that is absolutely risk-free. Part of that, if you 

look at the decline in small business lending and commercial bank, 

it almost exactly equals the increase in bank lending in terms of 

Government debt. So we have swapped who we have lent to. 

What I think is important here is we need to change the incentive system of banks, and I think we do need to question as well, 

while the Federal Reserve has paying interest on reserves as a way 

to get us out of this crisis, it does not make sense in a situation 

where there is not a lot of liquidity actually getting out to the economy to pay interest on reserves. We are encouraging banks to hold 

excess reserves. 

It is important to keep in mind, commercial insured depositories 

have a trillion dollars in cash just sitting around. So there is not 

a lack of capacity. It is really, how do we change the incentive system so that they put those funds into risk-making, like construction, but also into small business and other things. And I really 

think we need to look at monetary policy as a component of this 

and what the Fed is doing. 

Mr. PHIPPS. Senator, the only thing I would add is on the consumer side, your FICO scores become the equivalent of your SAT 

score, and if the FICO score is below a certain threshold, the lender 

really does not look at you in a holistic approach. We need to get 

back to common sense, holistic lending where they take the amount 

down, the whole financial profile of the potential borrower, when 

analyzing whether to give them financing or not. 

You do not need 760 as a minimum credit score to be credit-worthy and to be honorable in terms of repaying back the mortgage. 

The pendulum has swung so far that the rate of default over the 

2009 instruments, mortgages that were issued, is about 1.2 percent, which is well-below the normal we would have seen in the 

early 2000 range. So getting it back to medium is important. 

We have been meeting with the lenders, meeting with Fannie, 

Freddie, FHA to say, Please bring it back to a centrist, commonsense, sustainable criteria. We are just not seeing that impact as 

quickly as we would like it because at 15 percent of the market, 

if we move from 5 to 5.75, that is a lot of transactions and a lot 

of jobs. But the problem still is very, very much present in the marketplace. 

Senator MENENDEZ. Thank you, Mr. Chairman. I have questions 

for the record for Mr. Lubell, but my time is over on affordable 

housing, which I would love to see your answer on, and we look forward to seeing your legislation and working on trying to change 
21 

this dynamic, because I do not think we are going to move the 

housing market until we get the regulators moving in a different 

direction. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chair, and I want 

to continue on in the conversation about credit, and specifically, 

Mr. Crowe, in your testimony, you noted, ‘‘Most importantly for the 

Nation’s small home builders, Congress, regulators, and financial 

institutions must work to unblock acquisition development and construction lending channels.’’ 

I think you mentioned that you may, in the near future, have a 

legislative proposal. I just wondered if there were some points you 

would like to preview for us. 

Mr. CROWE. Thank you, Senator. I was given an opening by Senator Menendez, and so I took it. In summary, what we are looking 

for is the Congress to throw its weight around, if you will, because 

we have not had any success in convincing the regulators that 

there seems to be one systematic regulation concerning home builders throughout the country, even though, as I think you have heard 

in testimony today, the markets are dramatically different across 

the country. 

And so, we have recovering markets in Texas, for instance, and 

some other States, and not so recovering in other States; and yet, 

we see no differentiation in the ability for builders to borrow. So 

what we are looking for is a little more sanity to the regulatory 

oversight that would allow financial institutions, who tell us they 

are perfectly comfortable with lending to real estate in certain markets, but are being told no by the regulators. 

Senator MERKLEY. And so essentially, is it a cap on the percentage of the loan portfolio that can go to homes? 

Mr. CROWE. Thank you. Yes, it is several points, but one of them 

is a guideline of no more than 100 percent of capital going to real 

estate. It is a guideline, nevertheless being used as a hard and fast 

rule. So if an institution has that much loan on its balance books 

already, it can no longer add any even though there is another 

good one out there. 

Senator MERKLEY. An individual was actually telling me, as the 

owner of a commercial building, where he went to get a real estate 

loan for that building, and in the end, the bank did it as a nonreal 

estate loan, essentially foregoing the collateral, which was an insane decision from a common-sense point of view, but as a result 

of these type of caps that you are referring to. 

Mr. Phipps, I really appreciated your point about the intangible 

value of home ownership. It is certainly something that I feel 

strongly about. Do you want to mention some of what you consider 

to be the intangible benefits? 

Mr. PHIPPS. At the end of the day, we all need shelter, so we 

need a place to live, and when you look at the benefits, when people—we keep talking about skinning the game, Senator, and I get 

entertained by that, that skinning the game is a down payment. 

Skinning the game is my name on that deed saying I own that 

property, that I have an investment for my family. 

Now, we got away from the discipline of taking out a 30-year 

mortgage and paying it off. But that is the concept that worked for 
22 

my parents, it worked for my grandparents. We need to go back to 

that, but that is an asset that really has a lot to do with my sense 

of place, accomplishment, and self-worth, and benefit to society. 

We as realtors are committed to the concept of self-reliance. We 

believe that home ownership is a prerequisite for that. When you 

look at the benefits for neighborhood, for community, for test results, et cetera, they are all plus. We watch it with great caution 

because this Government has made a historic commitment to home 

ownership. 

We think, in the highest purpose for over a hundred years, and 

the game has been played this way for a hundred years, so we are 

very anxious about any effort to reduce the number of baseball 

bases on the diamond or change the number of innings or change 

the number of outs, because we think home ownership, at the end 

of the day, is right for our children and grandchildren. 

Senator MERKLEY. Well, thank you very much, and I really echo 

that. I certainly saw in my work with Habitat for Humanity and 

then other work in home ownership that the fact that one has the 

ability to have the freedom of choosing to do what you want on that 

property. No longer is there a rule about what color you can paint 

the house, no longer is there a landlord to call when something is 

broken, you have to take the responsibility for that. 

A huge positive influence on the children. The stability. You 

mentioned test results. Study after study is showing children do 

far, far better with the stability when the family is in home ownership and more likely to graduate from high school, more likely to 

go to college, more likely to have higher incomes, more likely to 

have lower dependence on any future payments, which saves—is 

not just intangible. That is tangible. That is a real, real benefit. 

It bothers me to hear folks saying that we should not press for 

home ownership in our society, especially because what they are responding to is the impact of predatory mortgages. If a family was 

unsuccessful on a predatory exploding interest rate mortgage, that 

does not mean they would not have been successful if they had 

been offered a straight-forward prime fully amortizing mortgage. 

I wanted to, in that sense, one of our major programs for home 

ownership is the home mortgage interest deduction and it is a very 

valuable program over the long term to reduce the size of payments. One thing that I have been interested in is more help at the 

front end, and that is, for working families, often the home mortgage interest deduction provides only a modest amount of assistance, especially when interest rates are low. 

Just a crude example, a $200,000 house, 10 percent down would 

be $180,000 mortgage, 5 percent, that would be $9,000 a year in 

interest, and your first year, which is the highest interest, and 

$9,000 for a couple is less than the standard deduction. So that 

couple would not actually get any benefit from the home mortgage 

interest deduction unless they had additional itemizable expenses. 

And if they did, it would probably be a modest amount. 

And so, I have been floating the idea, not of a temporary down 

payment tax credit, or better yet, ability to use those funds at closing, but of a permanent. And I realize permanent may be too expensive and too hard for people to seize on, but really what I am 

saying is, we used a down payment credit as a short-term stimulus, 
23 

but in terms of working families having matching assistance to get 

into a home to begin with, spending a little bit of money on the 

front end is highly valuable. 

We are spending around $100 billion a year on the home mortgage interest deduction. For somewhere around $5 billion a year, 

we could help a whole lot of families make that transition into 

home ownership, and in the short term, my sense has been that it 

would help absorb this excess inventory that several folks have 

mentioned. So I just thought I would invite you to share any 

thoughts about that. 

Mr. PHIPPS. Senator, we actually have studied the proposal and 

we are very intrigued by it. The experience of the tax credits before 

we thought were very effective in stabilizing the market. In Australia right now they have exactly that type of program and it is 

working extremely well. 

You prefaced the conversation with the mortgage interest deduction and we believe that life is choices, and we are very sensitive 

that that, for us, is the penultimate thing that we will defend. But 

we certainly support and encourage programs that provide for 

home ownership and opportunities for that. 

Senator MERKLEY. Thank you. And, Mr. Crowe, from the home 

builders’ point of view, any thoughts about that? 

Mr. CROWE. I think a similar comment. Down payment is the 

single biggest retardant for a first-time home buyer to get into a 

home. So any assistance. In fact, we still favor a higher loan to values, lower down payment mortgages with the appropriate premiums paid for the risks. So if there is another way to subsidize 

that down payment through some tax credit, we would certainly be 

supportive of that, certainly with the caveat that we still believe 

to be that the mortgage interest deduction is very important to the 

broad base of households. 

Senator MERKLEY. Yes. 

Mr. PHIPPS. Senator, if I may, there is one other thing that is a 

little bit disturbing for me in the conversation about down payments. The assumption is that if someone puts 5 percent down, 

that is all they are putting down. The closing costs typically run 

between 3 and 5 percent additional. So when we talk about the 

down payment, we really need to add the real cost that the homeowner has to bring to closing in order for that to happen. It is more 

than 5 percent or 10 percent or 20 percent. It is that amount plus 

the related closing costs. 

Senator MERKLEY. Point very well taken. And, Mr. Chair, I am 

over my time so I will follow up with additional comments you all 

have. Thank you. 

Chairman JOHNSON. Thank you, Senator Merkley. The housing 

market has several challenges to overcome. We took the initial 

steps in Dodd-Frank by strengthening underwriting standards and 

risk retention, but we still have work to do. I will look forward to 

continuing the discussion about the future of housing in America 

in the coming weeks and months. 

I am hopeful that as we explore the path forward, we will find 

more areas of agreement than disagreement. It is essential that we 

get this right for a sustainable housing market for American fami-
24 

lies. Thanks again to my colleagues and our panel for being here 

today. This hearing is adjourned. 

[Whereupon, at 4:26 p.m., the hearing was adjourned.] 

[Prepared statements supplied for the record follow:] 
25 

PREPARED STATEMENT OF SUSAN M. WACHTER 

RICHARD B. WORLEY PROFESSOR OF FINANCIAL MANAGEMENT, PROFESSOR OF REAL

ESTATE AND FINANCE, THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA

MARCH 9, 2011 

Chairman Johnson, Ranking Member Shelby, and other distinguished Members 

of the Committee, thank you for the invitation to testify at today’s hearing. It is 

my honor to be here to discuss the current state of the Nation’s owner-occupied 

housing markets. 

At this time, housing markets for single-family owned homes are fragile. The most 

recent data available from Radar Logic’s Residential Price Index show that home 

prices continued to decline in January 2011, with prices down over 34 percent from 

peak values. According to the S&P/Case-Shiller Home Price Index, the U.S. National 

Home Price Index declined 3.9 percent during the fourth quarter 2010 and is down 

4.1 percent for the year. In the most recent data, for the fourth quarter of 2010, 

the Census Bureau reports homeowner vacancy rates at 2.7 percent, up from 2.5 

percent in the third quarter of 2010. This is nearly 50 percent higher than the historical average vacancy rate for single-family homes. Looking ahead, the size of the 

current inventory of unsold homes and the so-called ‘shadow’ inventory will likely 

depress the price of homes further before prices stabilize. Industry estimates predict 

that housing prices will fall 5 percent to 10 percent more this year. The expectation 

of continued price declines will in itself deter home buying. Thus, the most pressing 

issue in the housing market today is how and when the excess inventory of homes 

will be cleared. 

Existing single-family home sales have increased in recent months. The National 

Association of REALTORS® reports an annualized rate of 5.36M in January, which 

is significantly higher than the 5.09M level of January 2009. Over a quarter of these 

homes sold in 2010 were distressed (including those in default, scheduled for foreclosure auction, and REO) according to RealtyTrac. Homes in process of foreclosure 

sell for a 28 percent discount in RealtyTrac’s most recent data. Not only do distressed homes sell for less, but with many homes still potentially in the foreclosure 

pipeline, an estimated 4 million homes—approximately 2 million in the foreclosure 

process and 2 million in default—this potential additional supply suppresses expected home prices. Homes with mortgages that are currently underwater may add 

to this potential excess supply. According to CoreLogic’s report of March 8, 2011, 

23.1 percent of all residential properties with a mortgage were in negative equity 

at the end of the fourth quarter of 2010, up from 22.5 percent in the third quarter, 

resulting in an aggregate level of negative equity of $751 billion. 

Although this supply overhang threatens to depress home prices further, national 

housing prices may not be far from reaching a bottom. The most important factors 

affecting the fundamentals of demand for owner-occupied housing are employment, 

income, interest rates, and the availability of financing. These factors impact demand for owner-occupied homes through household formation and the desired rate 

of home ownership. Household formation in particular depends upon job growth and 

is critical for the growth in demand for housing whether rental or owner-occupied. 

The recovery of housing markets requires that underlying fundamentals continue to 

improve. This includes critically that jobs continue to grow and that interest rates 

remain stable or increase within limited bounds as the economy gains strength. 

Today the national housing price-to-rent ratio, as calculated by Case-Shiller, is 

near the level observed in 2002–2003, which, given the low interest rates then prevailing, was not, I believe, significantly inflated. At today’s lower interest rates, the 

current rent/price ratio is not inconsistent with a bottoming of housing prices nationally. Homes today are affordable relative to income. According to the National 

Association of REALTORS’® Housing Affordability Index, a family at the median income has 185 percent of the income needed to purchase a median-priced home. 

Nonetheless, in the short run and intermediate run, the big threat facing the 

housing market is the uncertainty surrounding the supply overhang. The glut of 

foreclosed and delinquent homes currently sitting on the market could take years 

to work through. How long might it take to absorb the excess housing inventory? 

According to the Census Bureau, the total U.S. housing stock consisted of 130 million units in 2010. It is generally estimated that average population growth requires 

approximately 1.5 million housing units to be constructed annually. Combining this 

number with the number of units that need to be replaced due to deterioration, 0.4 

million according to the Congressional Budget Office, results in demand for approximately 2 million units annually. Housing starts are at historic lows, approximately 

500k units annually, thus far from the historic average demand, and the current 

overall vacancy rate is approximately 10 percent or 13 million units. To reduce over-
26 

all vacancy to historic norms of approximately 7 percent requires the absorption of 

3 percent (or 4 million) homes. Assuming household formation rates return to their 

historic levels, the excess vacancy could be absorbed in as little as 2 to 3 years so 

that by 2014, markets could reach equilibrium, on a national basis. However, the 

threat to this scenario is the supply of homes waiting on the sidelines. We run the 

risk of overshooting on the downside and falling beneath the price level justified by 

fundamentals—just as we far overshot equilibrium prices on the way up to the peak 

in 2006. 

Thus pending foreclosures and potential future foreclosures from the shadow supply weigh heavily on the housing market. This potential additional supply of unsold 

homes suppresses home prices today and adds to uncertainty in the future. Last 

year, over a quarter of homes sold were foreclosures and short sales. If prices increase, underwater homeowners will be made whole as the market restores their equity, thus over time reducing the number of homes sold in distressed sales. If the 

share of distressed sales rises, housing prices will fall further. A reentry into a vicious cycle of house price declines could push more homeowners underwater, precipitating more defaults, which will drive prices lower again. I am not predicting this, 

but it is a possible outcome. 

Distressed home sales and underwater mortgages are concentrated regionally. According to RealtyTrac, in January 2011, five States—California, Arizona, Florida, 

Michigan, and Nevada—accounted for over half of the Nation’s foreclosure filings. 

The differences in job growth and inventory across States add to the regional disparate housing outcomes. 

In addition to regional differences, national uncertainty remains. In the short and 

intermediate run, a slowing of job growth, a rise in interest rates, or a decline in 

the availability of credit would cause further price declines on a national scale. In 

any case, distressed properties will continue to account for a large proportion of 

total sales in the coming months, although defaults appear to be diminishing with 

the overall increased stability of markets. We may be at a turning point or may 

shortly be in the second half of 2011. But a recovery will depend upon continued 

strengthening of job markets and increased consumer confidence. For an incipient 

recovery to take hold, the availability of financing and, given the policy direction 

of moving away from Federal support of mortgage markets, the availability of private capital to finance mortgages is crucial. Uncertainty affecting the housing market includes the availability of financing, the terms under which loans will be made, 

as well as the path of disposition of mortgages that are currently in distress. 

Today approximately 90 percent of housing finance is federally supported. Borrowers who do qualify for home loans are able to access historically low mortgage 

rates for 30-year, fixed-rate loans. During the housing bubble, the market abandoned the 30-year, fixed-rate mortgage. Instead of long-term, fixed-rate, amortized 

mortgages, the bubble featured the wild growth of nonamortized, adjustable-rate 

mortgages with short, introductory teaser periods. They were designed to be refinanced upon the expiration of a short 2–3 year teaser period, as the promotional 

interest rate expired. The 30-year, fixed-rate mortgage has served American homeowners well; it was a source of tremendous stability for consumer finance and the 

national economy. Questions about whether such mortgages will be available or 

what will replace them are likely to be an additional and increasingly important factor creating uncertainty in housing markets. Private markets have now recognized 

the instability that can be a feature of housing finance, especially with volatile capital flows and potential interest rate rises with global capital market disruptions. 

Going forward, the housing finance system will be less vulnerable to economic disruptions affecting the ability to refinance if borrowers continue to have access to 

standardized fixed-rate mortgages. 

PREPARED STATEMENT OF MARK A. CALABRIA 

DIRECTOR OF FINANCIAL REGULATION STUDIES, CATO INSTITUTE

MARCH 9, 2011 

Chairman Johnson, Ranking Member Shelby, and distinguished Members of the 

Committee, I thank you for the invitation to appear at today’s important hearing. 

I am Mark Calabria, Director of Financial Regulation Studies at the Cato Institute, 

a nonprofit, nonpartisan public policy research institute located here in Washington, 

DC. Before I begin my testimony, I would like to make clear that my comments are 

solely my own and do not represent any official policy positions of the Cato Institute. In addition, outside of my interest as a citizen, homeowner, and taxpayer, I 
27 

1Denk, Dietz, and Crowe, ‘‘Pent-up Housing Demand: The Household Formations That Didn’t 

Happen—Yet’’, National Association of Home Builders. February 2011. 

have no direct financial interest in the subject matter before the Committee today, 

nor do I represent any entities that do. 

State of the Housing Market 

The U.S. housing market remains weak, with both homes sales and construction 

activity considerably below trend. Despite expected increases in mortgage rates, 

many forecasters are projecting increased housing activity in 2011. Although activity will likely be above 2010 levels, 2011 is expected to fall below 2009 levels and 

is unlikely to reach levels seen during the boom for a number of years. As other 

witnesses are likely to provide their economic forecasts of housing activity, which 

are generally within the consensus estimates, I will not repeat that exercise here. 

As in any market, prices and quantities sold in the housing market are driven 

by the fundamentals of supply and demand. The housing market faces a significant 

oversupply of housing, which will continue to weigh on both prices and construction 

activity. The Federal Reserve Bank of New York estimates that oversupply to be approximately 3 million units. Given that annual single family starts averaged about 

1.3 million over the last decade, it should be clear that despite the historically low 

current level of housing starts, we still face a glut of housing. NAHB estimates that 

about 2 million of this glut is the result of ‘‘pent-up’’ demand, leaving at least a million units in excess of potential demand. 1

The Nation’s oversupply of housing is usefully documented in the Census Bureau’s Housing Vacancy Survey. The boom and bust of our housing market has increased the number of vacant housing units from 15.6 million in 2005 to a current 

level of 18.7 million. The rental vacancy rate for the 4th quarter of 2010 declined 

considerably to 9.4 percent, although this remains considerably above the historic 

average. The homeowner vacancy rate actually increased from the 2nd and 3rd 

quarters to the 4th quarter of 2010, reached 2.7 percent, a number almost twice the 

historic average. 

The number of vacant for sale or rent units has increased, on net, by around 1 

million units from 2005 to 2010. Of equal concern is that the number of vacant units 

‘‘held off the market’’ has increased by about 1.5 million since 2005. In all likelihood, 

many of these units will reenter the market once prices stabilize. 

The fourth quarter 2010 national home ownership rate fell to 66.6 percent, just 

above the 1998 figure of 66.5, eliminating almost all the gain in the home ownership 

rate over the last 12 years. Declines in the home ownership rate were the most dramatic for the youngest homeowners, while home ownership rates for those 55 and 

over were stable or saw only minor declines. This should not be surprising given 

that the largest increase in home ownership rates was among the younger households and that such households have less attachment to the labor market than older 

households. Interestingly enough, the percentage point decline in home ownership 

was higher among households with incomes above the median than for households 

with incomes below the median. 

Homeowner vacancy rates differ dramatically by type of structure, although all 

structure types exhibit rates considerably above historic trend levels. Single-family 

detached homes displayed an owner vacancy rate of 2.3 percent, while owner units 

in buildings with 10 or more units (generally condos or co-ops) displayed an owner 

vacancy rate of 10.7 percent in the 4th quarter of 2010. Although single-family detached constitute 95 percent of owner vacancies, condos and co-ops have been impacted disproportionately. 

Owner vacancy rates tend to decrease as the price of the home increases. For 

homes valued under $150,000 the owner vacancy rate is 3.1 percent, whereas homes 

valued over $200,000 display vacancy rates of about 1.5 percent. The vast majority, 

almost 75 percent, of vacant owner-occupied homes are valued at $300,000 or less. 

Owner vacancy rates are also the highest for the newest homes, with new construction displaying vacancy rates twice the level observed on older homes. 

While house prices have fallen considerably since the market’s peak in 2006—over 

23 percent if one excludes distressed sales, and about 31 percent including all 

sales—housing in many parts of the country remains expensive, relative to income. 

At the risk of oversimplification, in the long run, the size of the housing stock is 

driven primarily by demographics (number of households, family size, etc.), while 

house prices are driven primarily by incomes. Due to both consumer preferences and 

underwriting standards, house prices have tended to fluctuate at a level where median prices are approximately three times median household incomes. Existing 

home prices, at the national level, are close to this multiple. In several metro areas, 

however, prices remain quite high relative to income. For instance, in San Fran-
28 

2 Edward Glaeser and Joseph Gyourko, ‘‘The Case Against Housing Price Supports’’, Economists’ Voice October 2008. 3 Also see, Robert Shiller, ‘‘Unlearned Lessons From the Housing Bubble’’, Economists’ Voice 

July 2009. 

cisco, existing home prices are almost eight times median metro incomes. Despite 

sizeable decline, prices in coastal California are still out of reach for many families. 

Prices in Florida cities are generally above four times income, indicating they remain above long-run fundamentals. In some bubble areas, such as Phoenix and Las 

Vegas, prices are below 3, indicating that prices are close to fundamentals. Part of 

these geographic differences is driven by the uneven impact of Federal policies. 

Household incomes place a general ceiling on long-run housing prices. Production 

costs set a floor on the price of new homes. As Professors Edward Glaeser and Joseph Gyourko have demonstrated, 2 housing prices have closely tracked production 

costs, including a reasonable return for the builder, over time. In fact the trend has 

generally been for prices to about equal production costs. In older cities, with declining populations, productions costs are often in excess of replacement costs. After 

2002, this relationship broken down, as prices soared in relation to costs, which also 

included the cost of land. 3 As prices, in many areas, remain considerably above production costs, there is little reason to believe that new home prices will not decline 

further. 

It is worth noting that existing home sales in 2010 were only 5 percent below 

their 2007 levels, while new home sales are almost 60 percent below their 2007 

level. To a large degree, new and existing homes are substitutes and compete 

against each other in the market. Perhaps the primary reason that existing sales 

have recovered faster than new, is that price declines in the existing market have 

been larger. Again excluding distressed sales, existing home prices have declined 23 

percent, whereas new home prices have only declined only about 10 percent. I believe this is pretty clear evidence that the housing market works just like other 

markets: the way to clear excess supply is to reduce prices. 

Mortgage Markets and Mortgage Policies 

For those who can get a mortgage, rates remain near historic lows. These lows 

rates, however, are not completely the outcome of the market, but are driven, to a 

large degree, by Federal policy interventions. Foremost among these interventions 

is the Federal Reserve’s current monetary policy. Of equal importance is the transfer of almost all credit risk from market participants to the Federal taxpayer, via 

FHA and the GSEs. Given massive Federal deficits as far as the eye can see, and 

the already significant cost of rescuing Fannie Mae and Freddie Mac, policymakers 

should be gravely concerned about the risks posed by the current situation in our 

mortgage markets. Immediate efforts should be made to reduce the exposure of the 

taxpayer. 

In transitioning from a Government-dominated to market-driven mortgage system, we face the choice of either a gradual transition or a sudden ‘‘big bang.’’ While 

I am comfortable with believing that the remainder of the financial services industry could quickly assume the functions of Fannie Mae and Freddie Mac, I recognize 

this is a minority viewpoint. Practical politics and concern as to the state of the 

housing market point toward a gradual transition. The question is then, what form 

should this transition take? One element of this transition should be a gradual, 

step-wise reduction in the maximum loan limits for the GSEs (and FHA). 

If one assumes that higher income households are better able to bear increases 

in their mortgage costs, and that income and mortgage levels are positively correlated, then reducing the size of the GSEs’ footprint via loan limit reductions would 

allow those households best able to bear this increase to do so. As tax burden and 

income are also positively correlated, the reduction in potential tax liability from a 

reduction in loan limits should accrue to the very households benefited most by such 

a reduction. 

Moving beyond issues of ‘‘fairness’’—in terms of who should be most impacted by 

a transition away from the GSEs—is the issue of capacity. According to the most 

recent HMDA data (2009), the size of the current jumbo market (above $729k) is 

approximately $90 billion. Reducing the loan limit to $500,000 would increase the 

size of the jumbo market to around $180 billion. Since insured depositories have excess reserves of over $1 trillion, and an aggregate equity to asset ratio of over 11 

percent, it would seem that insured depositories would have no trouble absorbing 

a major increase in the jumbo market. 

Given that the Mortgage Banker Association projects total residential mortgage 

originations in 2011 to be just under $1 trillion, it would appear that insured depositories could support all new mortgages expected to be made in 2011 with just 
29 

their current excess cash holdings. While such an expansion of lending would require capital of around $40 billion, if one is to believe the FDIC, then insured depositories already hold sufficient excess capital to meet all new mortgage lending 

in 2011. 

Moving more of the mortgage sector to banks and thrifts would also insure that 

there is at least some capital behind our mortgage market. With Fannie, Freddie, 

and FHA bearing most of the credit risk in our mortgage market, there is almost 

no capital standing between these entities and the taxpayer. 

The bottom line is that reducing the conforming loan limit to no more than $500,000, if not going immediately back to $417,000, would represent a fair, equitable and feasible method for transitioning to a more private-sector driven mortgage 

system. Going forward, the loan limit should be set to fall by $50,000 each year. 

As this change could be easily reversed, it also represents a relatively safe choice. 

Reducing the competitive advantage of Fannie Mae and Freddie Mac via a mandated increase in their guarantee fees would both help to raise revenues while also 

helping to ‘‘level the playing field’’ in the mortgage market. Given that the Federal 

taxpayer is covering their losses and backing their debt, along with the suspension 

of their capital requirements, no private entity can compete with Fannie Mae and 

Freddie Mac. We will never be able to move to a more private market approach 

without reducing, if not outright removing, these taxpayer-funded advantages. 

An increase in the GSE guarantee fee could also be used to recoup some of the 

taxpayer ‘‘investment’’ in Fannie Mae and Freddie Mac. Section 134 of the Emergency Economic Stabilization Act of 2008, better known as the TARP, directed the 

President to submit a plan to Congress for recoupment for any shortfalls experienced under the TARP. Unfortunately the Housing and Economic Recovery Act of 

2008, which provided for Federal assistance to the GSEs, lacked a similar requirement. Now is the time to rectify that oversight. Rather than waiting for a Presidential recommendation, Congress should establish a recoupment fee on all mortgages purchased by Fannie Mae and Freddie Mac. Such a fee would be used directly 

to reduce the deficit and be structured to recoup as much of the losses as possible. 

I would recommend that the recoupment period be no longer than 15 years and 

should begin immediately. A reasonable starting point would be 1 percentage point 

per unpaid principal balance of loans purchased. Such as sum should raise at least 

$5 billion annually and should be considered as only a floor for the recoupment fee. 

In any discussion regarding costs in our mortgage market, we must never forget 

that homeowners and homebuyers are also taxpayers. Using either current taxes or 

future taxes (via deficits) to fund subsidies in the housing market reduces household 

disposable income, which also reduces the demand for housing. None of the subsidies provided to the housing and mortgage markets are free. They come at great 

costs, which should be included in any evaluation of said subsidies. 

Contribution of Federal Policy 

Federal Government interventions to increase house prices, including Federal Reserve monetary and asset purchases, have almost exclusively relied upon increasing 

the demand for housing. The problem with these interventions is they have almost 

the opposite impact between markets where supply remains tight and those markets 

with a housing glut. In areas where housing supply is inelastic, that is relatively 

unresponsive (often the result of land use policies), these programs have indeed 

slowed price declines. Areas where supply is elastic, where building is relatively 

easy, have instead seen an increase in supply, rather than price. For these areas 

the increase in housing supply will ultimately depress prices even further. 

A comparison of San Diego, CA, and Phoenix, AZ, illustrates the point. Both are 

of similar population (2.5 million for Sand Diego, 2.2 million for Phoenix), and both 

witnessed large price increases during the bubble. Yet the same Federal policies 

have drawn different supply and price responses. In 2010, about 8,200 building permits were issued for the greater Phoenix area; whereas only about 3,500 were 

issued for San Diego. Existing home prices (2010) in Phoenix fell over 8 percent, 

whereas prices in San Diego actually grew by 0.6 percent. This trend is compounded 

by the fact that prices are almost three times higher in San Diego than in Phoenix. 

The point is that Federal efforts to ‘‘revive’’ the housing market are sustaining 

prices in the most expensive markets, while depressing prices in the cheapest markets, the opposite of what one would prefer. As home prices are correlated positively 

with incomes, these policies represent a massive regressive transfer of wealth from 

poorer families to richer. 

Among policy interventions, the Federal Reserve’s interest rates policies are perhaps having the worst impact. It is well accepted in the urban economics and real 

estate literature that house prices decline as distances from the urban core increase. 

It is also well accepted that the relative price of urban versus suburban house prices 
30 

is influenced by transportation costs. For instance, an increase in the price of gas, 

will, all else equal, lower the price of suburban homes relative to urban. If loose 

monetary policy adds to increases in fuel prices, which I believe it currently is, then 

such monetary policies would result in a decline in suburban home prices relative 

to urban. One can see this dynamic play out in California. In general, prices in central cities and urban cores, have witnessed only minor declines or actual increases 

over the last year. According to the California Association of Realtors, overall State 

prices are down just 2 percent from January 2010 to January 2001. Yet prices in 

the inland commuting counties—Mariposa (-27%), San Benito (-14%), Butte (-29%), 

Kings (-16%), Tulare (-16%)—are witnessing the largest declines, in part driven by 

increases in commuting (gas) costs. 

Foreclosure Mitigation and the Labor Market 

There is perhaps no more important economic indicator than unemployment. The 

adverse impacts of long-term unemployment are well known, and need not be repeated here. Although there is considerable, if not complete, agreement among 

economists as to the adverse consequences of jobless; there is far less agreement as 

to the causes of the currently high level of unemployment. To simplify, the differing 

explanations, and resulting policy prescriptions, regarding the current level of unemployment fall into two categories: (1) unemployment as a result of lack of aggregate demand, and (2) unemployment as the result of structural factors, such as 

skills mismatch or perverse incentives facing the unemployed. As will be discussed 

below, I believe the current foreclosures mitigation programs have contributed to 

the elevated unemployment rate by reducing labor mobility. The current foreclosures mitigation programs have also helped keep housing prices above marketclearing levels, delaying a full correction in the housing market. 

First we must recognize something unusual is taking place in our labor market. 

If the cause of unemployment was solely driven by a lack of demand, then the unemployment rate would be considerably lower. Both GDP and consumption, as 

measured by personal expenditures, have returned to and now exceed their precrisis 

levels. But employment has not. Quite simply, the ‘‘collapse’’ in demand is behind 

us and has been so for quite some time. What has occurred is that the historical 

relationship between GDP and employment (which economists call ‘‘Okun’s Law’’) 

has broken down, questioning the ability of further increases in spending to reduce 

the unemployment rate. Also indicative of structural changes in the labor market 

is the breakdown in the ‘‘Beveridge curve’’—that is the relationship between unemployment and job vacancies. Contrary to popular perception, job postings have been 

steadily increasing over the last year, but with little impact on the unemployment 

rate. 

Historically many job openings have been filled by workers moving from areas of 

the country with little job creation to areas with greater job creation. American history has often seen large migrations during times of economic distress. And while 

these moves have been painful and difficult for the families involved, these same 

moves have been essential for helping the economy recover. One of the more interesting facets of the recent recession has been a decline in mobility, particular among 

homeowners, rather than an increase. Between 2008 and 2009, the most recent Census data available, 12.5 percent of households moved, with only 1.6 moving across 

State lines. Corresponding figures for homeowners is 5.2 percent and 0.8 percent 

moving across State lines. This is considerably below interstate mobility trends witnessed during the housing boom. For instance from 2004 to 2005, 1.5 percent of 

homeowners moved across State lines, almost double the current percentage. Interestingly enough the overall mobility of renters has barely changed from the peak 

of the housing bubble to today. This trend is a reversal from that witnessed after 

the previous housing boom of the late 1980s burst. From the peak of the bubble in 

1989 to the bottom of the market in 1994, the percentage of homeowners moving 

across State lines actually increased. 

The preceding is not meant to suggest that all of the declines in labor mobility, 

or increase in unemployment, is due to the foreclosure mitigation programs. Far 

from it. Given the many factors at work, including the unsustainable rate of home 

ownership, going into the crisis, it is difficult, if not impossible, to estimate the exact 

contribution of the varying factors. We should, however, reject policies that encourage homeowners to remain in stagnant or declining labor markets. This is particularly important given the fact that unemployment is the primary driver of mortgage 

delinquency. 

Conclusion 

The U.S. housing market is weak and is expected to remain so for some time. 

Given the importance of housing in our economy, the pressure for policymakers to 
31 

act has been understandable. Policy should, however, be based upon fostering an 

unwinding of previous unbalances in our housing markets, not sustaining said 

unbalances. We cannot go back to 2006, and nor should we desire to. As the size 

and composition of the housing stock are ultimately determined by demographics, 

something which policymakers have little influence over in the short run, the housing stock must be allowed to align itself with those underlying fundamentals. Prices 

should also be allowed to move towards their long-run relationship with household 

incomes. Getting families into homes they could not afford was a major contributor 

to the housing bubble. We should not seek to repeat that error. We must also recognize that prolonging the correction of the housing market makes the ultimate adjustment worse, not better. Lastly it should be remembered that one effect of boosting prices above their market-clearing levels is the transfer of wealth from potential 

buyers (renters) to existing owners. As existing owners are, on average, wealthier 

than renters, this redistribution is clearly regressive. 

PREPARED STATEMENT OF DAVID CROWE 

CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS

MARCH 9, 2011 

The National Association of Home Builders (NAHB) appreciates the opportunity 

to submit this statement to the Senate Committee on Banking, Housing, and Urban 

Affairs on the current state of the Nation’s housing markets, prospects for the future, and housing policy implications. NAHB represents over 160,000 member firms 

involved in home building, remodeling, multifamily construction, property management, housing finance, building product manufacturing and other aspects of residential and light commercial construction. 

The state of the Nation’s housing markets is improving but fragile. While the bottom of the market in terms of housing production and significant price declines is 

behind us, the road to a robust recovery for housing remains a long and difficult 

path. High unemployment, housing policy uncertainty in terms of buyer and builder 

finance, and long-term fiscal issues are challenges for the housing construction sector as it struggles to return to its long-run trend, with the job and economic benefits 

that such a development would bring. NAHB estimates that the construction of each 

single-family home creates three jobs, $90,000 in Federal, State, and local tax revenue, $145,000 in wage income, and $86,000 in net business income. 

NAHB urges Congress to agree to definite solutions regarding the future of the 

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac that ensure 

a functioning housing finance system that provides credit to homebuyers on reasonable terms, protect the housing tax incentives, including the deduction for home 

mortgage interest, and unblock the obstacles to acquisition, development, and construction (AD&C) lending for builders. 

In normal times, housing’s total contribution to Gross Domestic Product (GDP) is 

approximately 18 percent. Today it stands at a diminished 15 percent, with home 

building’s direct component down from a normal of 5 percent of GDP to 2.4 percent 

of GDP. In the first year of all post-World War II economic recoveries, except for 

the most recent cycle, housing averaged a 28 percent increase in production. In this 

recovery, housing construction has grown less than 5 percent. As a result, unemployment in the construction sector remains the highest of any major area of the 

economy. 

General Economic Conditions 

A recovery in the housing market is dependent on strong economic performance 

by the economy as a whole. The Commerce Department’s second estimate of growth 

in real GDP for the final quarter of last year, released on February 25, showed a 

downward revision from 3.2 percent to 2.8 percent; a revision that dropped growth 

for 2010 as a whole from 2.9 percent to 2.8 percent. This surprising development 

primarily reflected downward revisions to spending by consumers and State and 

local governments, along with a reduction in net exports. 

Last week’s job market data suggested an improving labor market. Total nonfarm 

payroll employment increased by 192,000 in February, a marked improvement after 

the weak performance in January. Job gains occurred broadly across sectors of the 

economy. Year-over-year, total payroll employment has grown by 1.3 million, or an 

average of 106,000 per month. The unemployment rate decreased to 8.9 percent, but 

the number of unemployed is still high at 13.7 million. 

Residential construction employment increased slightly in February, up 0.66 percent (13,200 jobs) to 2.024 million. Conditions are improving in the sector, as this 

is the fourth consecutive month of growth. However, year-over-year, the sector is 
32 

still down 65,800 jobs (-3.15%). Total construction unemployment continued to improve, falling to 16.39 percent on a seasonally adjusted basis, from 18.65 percent 

in January. Nonetheless, total loss in residential construction employment since its 

peak in April 2006 is 1.426 million (-41.3%). 

While it is positive that overall job creation is occurring, the economy in general, 

and the housing markets in particular with respect to the demand side of the market, require much more robust employment growth. In the 1990s, the labor force 

grew at a rate 139,000 a month, and in the prerecession 2000s this rate was 

122,000. To accommodate population growth and replace the more than 8 million 

jobs lost in the Great Recession, the economy needs to generate at least 300,000 jobs 

a month. 

With respect to regional economic conditions, unemployment rates are declining 

and jobs are being created, but there remains significant variation across States. 

Nevada’s total job losses exceed 14 percent of its employment force, and Michigan, 

Florida, and Arizona have recorded job losses of more than 10 percent of their labor 

forces. Nevada has the top unemployment rate, as of December 2010, at 14.5 percent, with the States of California, Florida, Michigan, Rhode Island, South Carolina, 

Oregon, Kentucky, Georgia, and Mississippi possessing rates greater than 10 percent. Nonetheless, all States have posted reductions in unemployment rates since 

their respective maximum rates, with the largest point declines reported in Michigan, Illinois, Washington, DC, and Alabama. 

Credit conditions remain tight. The Federal Reserve’s January Senior Loan Officer Opinion Survey indicated that, after easing slightly in the third quarter of 2010, 

banks resumed tightening their lending standards in the fourth quarter and the 

tightening continued in January 2011. Over the past 3 years the major banks have 

ratcheted up their credit standards to a point that it is very difficult for homeowners 

without superior credit standards to access loans for housing. 

Further, builders are finding access to credit even more difficult, with very few 

banks willing to provide AD&C loans. In the fourth quarter of 2010, NAHB survey 

data confirmed that few builders are even seeking loans given existing tight credit 

conditions. Only 17 percent of builders sought land acquisition loans in the fourth 

quarter, down 92 percent in the final quarter of 2005. Similarly, only 20 percent 

attempted to secure land development loans, down from 89 percent in 2005. For the 

single-family market, 40 percent of builders sought construction financing in the 

fourth quarter of 2011, down from 96 percent for the same period of 2005. Multifamily tells a similar story as well, with 19 percent of surveyed membership seeking 

construction financing, down from 82 percent in 2005. 

Data from the fourth quarter of 2010 indicates that of those builders reporting 

tighter conditions 77 percent noted lenders require lower loan-to-value ratios, 76 

percent indicated that lenders were not making new loans at all, 69 percent reported reduced lending amounts, 59 percent responded that lenders required personal guarantees or collateral not connected to the project, and 51 percent indicated 

higher interest rate requirements. Overall, these very tight credit standards are 

holding back housing demand and restricting supply. 

Taken together, NAHB expects above-trend growth of GDP over the 2011–2012 

period, with a modest slowdown in 2012 as fiscal stimulus to the economy fades 

away. NAHB is forecasting year-over-year GDP growth of 3.1 percent and 3.5 percent in 2011 and 2012, respectively. With respect to home construction, NAHB expects year-over-year growth in residential fixed investment to reach 12 percent in 

2011 and 26 percent in 2012, performances that will contribute about 0.3 and 0.7 

percentage points to GDP growth in these 2 years. 

Current Housing Market Conditions 

House prices have declined in recent months, falling with the end of the home 

buyer tax credit program. All major house price measures turned down in the third 

and fourth quarter of 2010, taking back some but not all of the gains achieved since 

early 2009. However, some of the price decline was related to the elevated share 

of the existing home sales market that was attributable to distressed sales. Data 

from RealtyTrac indicates that for 2010, 26 percent of home sales were distressed 

sales, and that homes in the foreclosure process on average sold for a 28 percent 

price discount. Bank-owned homes sold for an even deeper discount, a 36 percent 

reduction on average. 

Despite these recent declines, NAHB expects house prices to stabilize in the near 

term and to post slow growth later this year and in 2012 as economic growth produces jobs and improves consumer confidence. In many areas, house price-to-income 

ratios have returned to historical levels. On a national basis, the home price to income ratio has reached 3.2 (the level it approximately tracked from 1991 to 1999) 

after peaking at 4.7 in late 2005. 
33 

As of January 2011, private housing starts totaled 596,000 at an annualized rate. 

This is well below the long-run trend of approximately 1.7 million new homes that 

are necessary to accommodate population growth and replacement of older housing 

stock. The gap between current production and potential housing construction is a 

result of multiple factors, including builders dealing with excess housing inventory, 

deferred household formations, and lack of AD&C financing. 

Inventories of new and existing homes continue to fall as a result of significant 

declines in housing construction. The National Association of REALTORS® estimates that the national inventory of existing homes for January 2011 stands at 3.38 

million homes, a 7.9 months supply of homes at current sales rates. This is significantly lower than the 12.5 months supply that was recorded in July 2010. In contrast to existing homes, newly constructed inventories represent a very small share 

of total housing inventory. As of January 2011, the Census reports 188,000 newly 

constructed homes for sale, a 7.9 months supply. This is also much reduced from 

the 11.2 months supply level reported in 2008. Such inventory numbers reflect 

homes that are completed, are underway, or not yet under construction. Inventories 

of completed constructed for-sale homes stand at an all-time low: 78,000 in January 

2011, down from 199,000 in January 2009. The homebuyer tax credit program was 

effective in reducing these inventories, and we thank the Congress for its support 

of this important program during the Great Recession. 

On the negative side, the inventory of foreclosed homes rose in the fourth quarter 

of 2010, matching the peak level set at the start of the year. The foreclosure crisis 

is unlikely to fade in the near-term, with delinquency rates remaining high, providing a steady flow of foreclosure starts. While the rate of foreclosures declined in 

the fourth quarter of 2010 to 1.27 percent of all loans outstanding, it was only a 

modest improvement from the peak level of 1.42 percent in third quarter of 2009. 

The foreclosure problem is concentrated however, with very high rates of foreclosures started in Nevada (2.95 percent of loans outstanding in Q4 2010), Arizona 

(2.29%), Florida (2.21%), Illinois (1.55%), Michigan (1.55%), and California (1.41%). 

These six States also hold almost half of the foreclosure inventory. The large number of foreclosed properties on the market will continue to exert downward pressure 

on house prices and stifle demand in these States through 2012. In other States less 

burdened by foreclosures, the housing market is likely to be more responsive to the 

improvement in economic activity and declines in the unemployment rate that is expected in the near term. 

While much has been made of the excess supply of homes, the demand side of 

the housing market has also contributed to recent weakness. Due to high unemployment rates and economic uncertainty associated with the aftermath of the Great Recession, many households that were expected to form due to simple population 

growth have not in fact materialized. Such individuals may represent children living 

with parents, roommates doubling up, or even divorce-related. NAHB estimates that 

approximately 2.1 million household formations have been delayed as a result of recent economic conditions. These potential households constitute a ‘‘shadow demand’’ 

for the Nation’s housing markets. As the economic picture improves, we expect this 

demand to be unlocked, helping to reduce housing vacancy rates. 

Finally and most importantly in terms of the long-term health of the home building industry, low levels of housing construction activity, and its spillover economic 

benefits and job creation, are also due to lack of financing available to small- and 

medium-sized builders across the Nation. 

Small businesses are the heart of the residential construction sector, which includes single-family and multifamily construction, land development and home remodeling. Overall, approximately one-third of NAHB’s membership is made up of 

dedicated builders. The remaining share of its membership consists of associate 

members who also work within the residential construction sector. 

As measured by workers, 80 percent of NAHB builder members have less than 

10 employees, with the average member having approximately 11 employees. Only 

1 percent of NAHB builder members have more than 100 employees. For NAHB’s 

associate members, nearly 90 percent have less than 50 employees. 

Approximately 50 percent of NAHB builder members have less than $1 million 

in gross receipts, and 86 percent have less than $5 million in gross receipts. Approximately 80 percent of NAHB builder members built 10 or fewer homes in 2010. 

NAHB’s associate members are very similar to its builder members with respect to 

dollar size of business, with 77 percent having less than $5 million in gross receipts. 

These kinds of small businesses typically rely on debt financing, often from regional and community banks. For such businesses, the credit crunch persists, and 

lending conditions are as tight as ever. Builders who have local demand to build 

often cannot access AD&C financing, thereby preventing business activity and job 

creation. 
34 

Housing Market Outlook 

The near-term outlook for new housing demand remains sluggish, with the 

NAHB/Wells Fargo Housing Market Index (HMI) for February failing to gain 

ground. The HMI remains at a level of 16, with any reporting less than 50 indicating ongoing weakness on the demand side of the new-home market and suggesting low levels of single-family production for some time. 

These sobering signals have persisted despite record-high readings regarding the 

affordability of home purchases. NAHB’s housing opportunity index (HOI) reached 

a new high in the fourth quarter of 2010. Similarly, consumers’ view of the buying 

conditions for homes from the University of Michigan consumer sentiment survey 

is also very high. However, while consumers are aware of the very favorable affordability conditions and continued low interest rates (30-year, fixed-rate mortgage 

rates have hovered around 5 percent since mid-December 2010), other factors, such 

as concerns over their employment situation and income growth, tight buyer credit 

conditions, and inaccurate appraisals, are holding back prospective home buyers. 

Despite some recent downward revisions, NAHB expects slowly improving economic and financial market conditions, along with great affordability conditions, to 

support moderate increases in new single-family home sales and housing production 

in 2011–2012. 

New single-family home sales and housing production are expected to remain 

weak in the first half of 2011, but will pick up in the second half of the year, with 

momentum building through 2012. NAHB’s forecast of new home sales shows a 

modest gain of 8 percent in 2011, before a more substantial 49 percent increase in 

2012. 

After recent gains, the rate of increase in existing single-family home sales is expected to slow in the first quarter of 2011. However, we expect that it will return 

to its strong rate of growth in the second quarter, which will carry through to the 

end of 2012. This will return existing single-family home sales to their long-term 

sustainable trend level by the end of 2012. 

Single-family housing starts will follow a similar trend to new single-family home 

sales with an increase of 15 percent in 2011 and 47 percent in 2012. This will raise 

the level of single-family starts to 900,000 units by the end of 2012. While a substantial gain over current depressed levels, this is still 40 percent below NAHB’s 

estimate of the long-term sustainable trend, based on demographics, replacement 

needs, and second-home demand. 

Multifamily housing starts have experienced great volatility in recent months, rising from 89,000 in June 2010 to 182,000 in August, back down to 93,000 in November then up to 183,000 in January 2011. This variation is expected to continue, with 

a sharp rise in multifamily housing starts expected in the first quarter of 2011, a 

modest decline in the second quarter, before resuming steady growth through the 

end of 2012. Overall multifamily housing starts are projected to increase 21 percent 

in 2011 and 40 percent in 2012, rising to 210,000 units in the fourth quarter of 

2012, which is still 38 percent below NAHB’s estimate of the long-term sustainable 

level. 

Residential fixed investment (RFI) experienced only moderate growth in the 

fourth quarter of 2010, with the gains in existing home sales (i.e., increase in brokers’ commission) countered by weak housing production (single-family and multifamily housing starts). Increases are expected over the next few years, with the forecasts for housing production and home sales generating year-over-year growth in 

real RFI of 12 percent in 2011 and 26 percent in 2012. However, coming from an 

extremely low level in 2010, these gains in RFI will provide only a modest contribution to GDP growth, about 0.3 and 0.6 percentage points respectively, in those 2 

years. 

Policy Implications 

Given housing’s ongoing weakness in the economy, NAHB urges Congress to approach housing policy with due caution. Several housing policies loom on the horizon, and if treated inappropriately, they have the potential to harm the housing sector, thereby hurting the savings of the Nation’s 75 million homeowners, as well as 

the ability of the residential construction and real estate industry to contribute to 

the economic recovery. 

First, NAHB urges Congress to agree to definite solutions to the issue of the GSEs 

that ensure a functioning housing finance system that provides credit to home buyers on reasonable terms. The housing market faces a strong possibility of a double 

dip characterized by strong price declines and significant declines in sales volumes 

if homebuyers do not have reasonable access to credit. In the short-term, the conforming loan price limits for mortgages will adjust downward, which could place 

downward price pressure on affected, high-cost markets. It is useful to remember 
35 

that FHA and GSE guarantees currently cover approximately 90 percent of mortgages issued today. 

Second, there has been increased attention paid to the Federal Government’s 

budget situation. The state of the Nation’s public finances is critical for homebuyers 

and home builders. A large Federal deficit can absorb savings that might be used 

for investment in housing, thereby leading to higher interest rates, increasing borrowing costs for small businesses and crowding out potential homebuyers. However, 

most economists believe the state of the Federal Government’s fiscal path is 

unsustainable, prompting cries of reform, both for Government spending and tax 

policy. And a target for some within this debate is the mortgage interest deduction 

(MID), arguably the most important tax rule for homebuyers and homeowners in the 

U.S. 

It is important to keep in mind that the deduction for mortgage interest is solidly 

a middle class tax break. Nearly 70 percent of the benefits of the MID is collected 

by homeowners with less than $200,000 in income. In 2012, the tax expenditure for 

the MID—roughly its budget size—is estimated by the Joint Committee on Taxation 

as $94 billion. While a large number—not surprisingly as more than 35 million 

homeowners will benefit from the MID directly in 2012—this amount totals to only 

3.7 percent of expected tax collections in that year. Under realistic policy estimates, 

a total repeal of the MID would likely collect $75 million or less, as homeowners 

restructure their finances, increasing tax collections by only about 3 percent (or half 

a percentage point of GDP). This is not responsible for, nor can it fix, the Nation’s 

fiscal challenges. 

Other housing tax rules, such as the capital gain exclusion, the real estate tax 

deduction, and the Low-Income Housing Tax Credit (LIHTC), are well-established 

housing policies, which if eliminated or weakened would result in wealth losses for 

homeowners (in the case of the gain exclusion) or the abandoning of a successful 

policy that facilitates the production of affordable housing (in the case of the 

LIHTC). 

Regulators should also proceed with caution as they implement last year’s financial reform legislation (Dodd-Frank). A determination needs to be made regarding 

what constitute a qualified residential mortgage (QRM) that would be exempt from 

the law’s risk retention rules. An excessive down payment requirement, such as 20 

percent, would squeeze first-time homebuyers out of the housing market for years 

to come, preventing household formations and producing economic damage to the 

overall economy. 

Finally, and most importantly for the Nation’s small home builders, Congress, 

regulators, and financial institutions must work to unblock the AD&C lending channels, to permit home builders to contribute to the economy where and when housing 

demand emerges as the economy improves. Without access to credit, the residential 

construction industry will lose more small businesses and experience more job 

losses, with these impacts being widely spread across the Nation. 

With this in mind, NAHB has presented banking regulators with specific instances of credit restrictions; provided data showing no difference in credit access 

across market conditions and requested specific changes to current regulatory guidance. To date, these efforts have not produced any tangible results. With the spigot 

for housing production loans cut off, and threat that the uncertainty from DoddFrank rulemaking will further affect the ability of small community lenders to service the credit needs of the home building industry, it is clear that Congressional action is needed to help open the flow of credit to home builders. Without such action, 

there can be no housing recovery, which has major implications for our Nation’s 

ability to recover from the current economic downturn. NAHB has outlined a formal 

legislative blueprint to Congress detailing key legislative elements critical to help 

ensure adequate credit availability to home builders. Three of these key elements 

focus on fixing specific instances of regulatory excess, while the final element aims 

to address the ability of the Small Business Administration (SBA) to meet the credit 

needs of small home builders. In the coming weeks and months, NAHB will be 

working with Congress to address these critical issues and seek congressional action 

to address each specific concern. 
36 

PREPARED STATEMENT OF RON PHIPPS 

PRESIDENT, NATIONAL ASSOCIATION OF REALTORS®

MARCH 9, 2011 

Introduction 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, on 

behalf of more than 1.1 million REALTORS® who are involved in residential and 

commercial real estate as brokers, sales people, property managers, appraisers, 

counselors, and others engaged in all aspects of the real estate industry, thank you 

for inviting me to testify today regarding the current state of the Nation’s housing 

market. I am also speaking on behalf of the 75 million American families who own 

homes and the 310 million Americans who require shelter. 

My name is Ron Phipps. I am a 3rd generation member of a 4 generation family 

tradition in the Rhode Island residential real estate industry. My passion is making 

the dream of home ownership available to all American families. As direct result 

of my passion, I have become very active within the National Association of REALTORS® (NAR); holding significant positions at both the State and national levels. 

Since 2000, I have been President of the Rhode Island Association, a NAR Regional 

Vice President, and a member of the NAR Executive Committee. Currently, I am 

the 2011 NAR President. 

Most Americans understand the value of home ownership. They measure their financial wellness in large part with home ownership and with the equity they have 

in that home. Home ownership provides them with shelter. Owning one’s home is 

the first commandment of self-reliance for most families. Most Americans understand the value of buying a home and over time paying the mortgage off. More 

Americans rely on this tangible asset for their confidence in their own financial situation, the overall financial well-being of the country, and the strength of these 

United States: ‘‘Life, Liberty, and the Pursuit of Happiness’’ was Life, Liberty and 

Property in the first draft by Jefferson. 

Current Housing Trends 

The housing climate continues to be erratic. Mortgage rates have jumped from 

their exceptionally low levels of last year, and are likely to rise even further. Of 

course, REALTORS® expected mortgage rates to increase—that is not unusual as 

an economy comes out of recession and moves into recovery. 

However, consumer malaise continues to prevail in the overall economy, effectively retarding the housing recovery. NAR believes that the economy may not be 

able to rely heavily on those consumers with stable jobs to help with economic recovery. A solid stock market recovery has lifted wealth for some, but many consumers 

historically have relied on the wealth tied to their housing equity for confidence. 

These consumers are now staring at a much lower household net worth in the aftermath of a painful housing market bust. Furthermore, many homeowners who refinanced last year into historically low rates interestingly brought more cash to the 

table, thus lowering their overall mortgage debt—perhaps to further increase their 

ability to repay their obligation and/or to improve their equity position. The lowering of debt is a healthy trend for the long-haul, but it also means less money 

available for current spending and current economic growth. 

Historically, the housing market has been a major power engine for economic 

growth, particularly coming out of a recession. This does not seem to be the case 

this time. Additional foreclosures and a shadow real estate owned (REO) inventory 

loom. As a result, housing starts may only reach 700,000 units in 2011—half the 

normal historical annual production, though an improvement from the 554,000 and 

586,000 starts, respectively, in the past 2 years. That implies little addition to economic growth. It also implies a potentially faster than expected ‘‘cleaning up’’ of 

what has been a bloated housing inventory, particularly as existing-home sales pick 

up. 

Since jobs are now being created, albeit at a slower than desired rate, existinghome sales will likely see some improvement in 2011. Changes in median home 

prices will be determined by how fast the inventory is worked off. Assuming that 

the pace of home sales can hold at near 5.3 million units, as occurred in the final 

month of last year and in January (with swings in home sales induced from the existence and absence of the homebuyer tax credit largely over), then the inventory 

absorption rate should keep home values broadly stable. This, combined with the 

continued reduction in builder activity—resulting in a 40-year low on newly constructed inventory—should help absorb some of the distressed shadow inventory 

that will be reaching the market. 
37 

NAR expects local housing market recovery paths in terms of both sales and 

prices to follow in the footsteps of local job market conditions. Those metros with 

reasonably healthy job creating markets have so far been Washington, DC, Boston, 

Minneapolis, and Seattle. The local economies with energy exposures such as those 

of Alaska, North Dakota, Oklahoma, and Texas are also doing relatively well. Improvements to jobs are helpful for home sales. We also need to be mindful that improved home sales help create jobs. Research suggests that one million additional 

home sales in 2011 over 2010 will mean 500,000 private sector jobs created in the 

country. Meaning, jobs and the housing market go hand-and-hand. 

The housing bust of recent years has unfortunately forced as many as 11 million 

homeowners in to underwater situations and the aggregate homeowner wealth has 

declined. The median net worth—the value of everything owned minus everything 

owed—for a homeowner is estimated to have fallen from $230,000 in 2007 to about 

$170,000 in 2010. However, the net worth of homeowners still outpaces that of a 

typical renter, which is only $4,000 to $5,000. That is a testament to long-term benefits for homeowners who steadily pay down mortgage. 

Aside from the eventual financial benefits gained over many years for homeowners, let’s not lose sight of the intangible societal benefits of home ownership: better communities, higher civic participation, lower juvenile delinquency, higher pupil 

test scores, and higher voter participation rates among home-owning families versus 

tenant (rental) households. As we continue to discuss the future of housing finance, 

we must consider the intangible social stability that arises from having a super majority of the population that are property owners. REALTORS® are not suggesting 

that home ownership will cure society’s ills, but the U.S. has seen the benefits of 

home ownership and private property rights that are protected by our Constitution. 

Housing Recovery Impediments 

The belief in home ownership as a pillar of American society is why REALTORS®

are reaching out, with great concern, to the national association to better understand the intentions of the Administration, Congress, and numerous regulatory bodies that are perceived as actively working to devalue, or place severe obstacles in 

the path of, home ownership. REALTORS® agree that reforms are required to prevent a recurrence of the housing market meltdown, but unnecessarily raising down 

payment will have ramifications for the overall economy, as well as housing. According to Exhibit 5-3 from NAR’s 2010 Home Buyer and Seller Profile (released November 2010), 41 percent of repeat buyers and 70 percent of first-time homebuyers had 

down payments of 10 percent or less of their home’s purchase price (see chart 

below). 

Congress intended to create a broad exemption from risk retention for historically 

safe mortgage products. REALTORS® believe that Federal regulators should honor 

Congressional intent by crafting a qualified residential mortgage (QRM) exemption 

that includes a wide variety of traditionally safe, well underwritten products such 
38 

as 30, 15, and 10 year fixed rate loans, 7–1 and 5–1 ARMs, and loans with flexible 

down payments that require mortgage insurance. The QRM is likely to shape housing finance for the foreseeable future and is therefore very important. Another reason QRM is important is that it serves as a precursor for what the future GSE is 

likely to be eligible to securitize. A poor QRM policy that does not heed the Congressional intent will displace a large portion of potential homebuyers, which in turn 

will slow economic growth and hamper job creation. 

Furthermore, frequent increases in fees from both FHA and the GSEs and credit 

overlays from lenders will unnecessarily increase the costs to homebuyers and discourage these consumers, who can otherwise afford a mortgage, from participating 

in the housing market. By some estimates, 10–15 percent of otherwise qualified buyers with a demonstrable ability to repay will be turned away due to the overly stringent requirements. This represents approximately 500,000 home sales that won’t 

happen, further dragging out the housing and economic recovery. (Every two additional closed real estate transactions can create one job, 500,000 sales can produce 

250,000 additional jobs.) 

REALTORS® believe that the pendulum on mortgage credit has swung too far in 

the wrong direction and it is hurting consumers and the economy. The harmful 

products that led to the bubble and crash are gone and no one is looking to bring 

them back, but making it harder for those who can afford a safe mortgage does not 

further the goals of recovery. 

As we have mentioned in prior testimony before this Committee and the House 

Financial Services Committee, reduced home buying activity hurts numerous businesses that are part of the housing industry (e.g., home renovation, remodeling, furnishing, etc.) and our State and local governments through reduced tax revenues. 

So, even though it is our belief that housing will not pull us out of this recession 

alone, the hampering of its recovery will severely, negatively impact any recovery 

that is, or soon to be, underway. 

Conclusion 

President Thomas Jefferson dreamed of a well-functioning and self-governing 

democratic society evolving from a Nation of agrarian land-owning families. During 

the World War II era, President Franklin Delano Roosevelt said that a Nation of 

homeowners is unconquerable. President Ronald Reagan advocated the need to preserve the mortgage interest deduction in order to promote the one important aspect 

of the American Dream—home ownership. 

The idea of home ownership has been attacked from many quarters because of 

the housing bubble and subsequent bust. Many mistakes were made during the 

cycle. However, as the country takes a critical look at Federal housing policy, let’s 

not lose sight of the immense intangible value of home ownership—sustainable 

home ownership—to our country. 

The National Association of REALTORS® sees a bright future for the housing 

market and the overall economy. However, our members are well aware that the 

future we see rests on the industry’s and the economy’s ability to successfully navigate some significant obstacles. Congress and the housing industry must maintain 

a positive, aggressive, forward-looking partnership if we are to ensure that housing 

and national economic recoveries are sustained. 

I thank you for this opportunity to present our view of the state of the Nation’s 

housing market. As always, The National Association of REALTORS® is at the call 

of Congress, our industry partners, and other housing stakeholders to help facilitate 

a sustainable housing and national economic recovery. 

PREPARED STATEMENT OF JEFFREY LUBELL 

EXECUTIVE DIRECTOR, CENTER FOR HOUSING POLICY

MARCH 9, 2011 

I am the Executive Director of the Center for Housing Policy, a research organization based in Washington, DC, working to expand awareness of the Nation’s housing 

challenges and to identify proven and promising strategies for meeting those challenges. In addition to analyzing relevant and timely data, we draw on the expertise 

of the broad range of practitioners that belong to our affiliate, the National Housing 

Conference. 

My testimony this afternoon will focus on housing affordability trends. The bottom 

line is simple and perhaps counterintuitive: despite several years of falling home 

prices, housing affordability has worsened for low-and moderate-income households. 

In 25 States, the share of working households severely burdened by their housing 

costs rose significantly between 2008 and 2009, while no State saw a statistically 
39 

1 Housing Assistance Council’s tabulations of the 2009 American Housing Survey public use 

files. 

significant decline. Lower home prices primarily benefit those in the market for a 

new home, and renters face steady or rising costs and more competition for low-cost 

units. For both owners and renters, falling incomes and a grim employment picture 

have contributed to the erosion of housing affordability. 

Worst Case Housing Needs 

Housing affordability is often a concern for renters with the lowest incomes. There 

were approximately 17.1 million very low-income renters in 2009, and a recent 

study by the U.S. Department of Housing and Urban Development (2011) found 

that: 

• 7.1 million (41 percent) had worst case needs, spending more than half of their 

income on housing costs, living in substandard housing, or both, without receiving Government rental assistance. 

• The number of renters with worst case needs has increased by nearly 42 percent since 2001. (See, Figure 1 in the Appendix.) Between 2007 and 2009, the 

number rose by 1.2 million households—or 20 percent. A 2-year increase of this 

magnitude is unparalleled in at least the last 25 years. 

• Only 60 affordable and adequate units were available for every 100 very lowincome renters in 2009. 

• Increased competition for affordable units, falling incomes, and a shortage of 

rental assistance are the primary factors driving the recent increase in worst 

case needs. 

• In 2009, families with children made up 39 percent of all renters with worst 

case needs, representing the most common household type. However, renters 

with worst case needs are far from homogenous, representing all household 

types, races/ethnicities, and residential settings. 

Low- and Moderate-Income Working Families 

But housing affordability concerns are not limited to very low-income renters. Another recent study—this time by the Center for Housing Policy—found high levels 

of severe housing cost burden among working families—both renters and owners— 

spanning a broad income range. In 2009, there were 46.2 million households in the 

United States that averaged at least 20 hours per week in the workplace and earned 

no more than 120 percent of the area median income. Our study (Wardrip 2011) 

found that: 

• Nearly one in four working households had a severe housing cost burden in 

2009, spending more than half of their income on housing. More than 10.5 million working households experienced this cost burden—an increase of 600,000 

households in only 1 year. 

• The share of working households with a severe housing cost burden increased 

significantly in 25 States between 2008 and 2009, while no States saw a statistically significant decrease. (See, Figure 2 in the Appendix.) 

• Roughly 80 percent of working households with extremely low incomes (below 

30 percent of the area median income) had a severe housing cost burden. However, housing costs burden working households of all incomes and tenures, from 

coast to coast. (See, Figure 3 in the Appendix.) 

• Working renters reported working fewer hours in 2009 than in 2008, and nominal household incomes declined by 4 to 5 percent for working renters and owners. 

Rural Housing Challenges 

Housing issues in rural America are often over-shadowed in policy discussions, 

but one-fifth of all U.S. households live in rural communities. Many of the same 

housing concerns associated with urban areas are also of concern in rural areas. 

• Roughly 3.4 million households in nonmetropolitan areas spent half or more of 

their income on housing in 2009. Approximately 40 percent were renters. 1

• Although housing quality in rural areas has improved markedly during the last 

several decades, it remains an issue for many. According to data collected in 

2009, approximately 1.5 million rural households lived in substandard housing 

(Housing Assistance Council 2010). 

• Among the 3.1 million very low-income renters in nonmetropolitan America, 

some 1.1 million—or 36 percent—had a worst case need in 2009, either spend-
40 

2 HUD (2010) reported to Congress that there were 643,067 homeless persons in January 

2009, a decrease of 3.2 percent from 2008. These estimates include three communities with 

which HUD expressed some methodological concerns. Sermons and Witte (2011) adjust the 

counts from these communities and make other adjustments to arrive at their estimate of over 

656,000 homeless persons and an increase of 3 percent. HUD notes that removing the three 

problematic estimates suggests that homelessness rose by 2.1 percent, a finding more closely 

in-line with Sermons and Witte (2011). 

ing more than half of their income on housing costs or living in severely inadequate conditions. This rate is close to that of renters with similar incomes in 

central cities and the suburbs (42 to 43 percent) (HUD 2011). 

• Despite lower housing costs generally, rural areas lack a sufficient number of 

units for their very low-income renters. Fewer than 73 units were affordable, 

available, and adequate for every 100 very low-income renters in nonmetropolitan areas in 2009 (HUD 2011). 

Homelessness 

Even in the best economic times, a substantial number of families and individuals 

go to bed each night without a permanent roof over their heads. The sagging economy and persistently high unemployment rate have not only eroded housing affordability for those with homes of their own but also made it increasingly difficult to 

address homelessness. 

• The number of people who were homeless on a given night in 2009 increased 

by 3 percent from 2008 to 2009, rising to approximately 656,129. 2 The homeless 

population increased in 30 States and the District of Columbia (Sermons and 

Witte 2011). 

• Over 1.5 million people used the shelter system during the 12 months ending 

September 30, 2009 (HUD 2010). Although the number of people seeking shelter has inched down over the last 2 years (-1.9 percent), the number of households with children doing so has increased from 131,000 to 170,000 over the 

same time period (HUD 2010). 

• The population living in doubled-up situations for economic reasons—a common 

living arrangement prior to homelessness—rose to over 6 million people in 2009, 

an increase of almost 12 percent in 1 year (Sermons and Witte 2011). 

Multifamily Housing Markets 

Much of the Nation’s affordable housing (whether assisted or unassisted by Government subsidies) is in multifamily properties. This sector is still recovering from 

the effects of the recession and the capital market disruptions, so affordability challenges will persist. The lack of financing and uncertainty about future demand 

greatly slowed the pace of new apartment construction, the effects of which will persist for at least 1–2 years. A recent Marcus & Millichap (2011) report expects only 

53,000 new apartment completions in 2011, down 46 percent from last year and far 

less than the expected 158,000 new units demanded. In general, the renting of foreclosed single-family homes does not significantly offset the shortage of new apartments—these houses are priced higher, more costly to maintain, in inconvenient locations for renters, and difficult to manage efficiently as rental properties. 

Reliable capital flows are still a barrier to sustained multifamily production as 

well. Debt capital is still primarily Government backed, with the GSEs and FHA 

providing more than 90 percent of new originations. Equity investment interest is 

once again growing due to projections of rising demand and stronger yields. Demand 

for Low Income Housing Tax Credits (LIHTC) has rebounded somewhat from the 

devastating retreat of equity capital in 2008–9, although demand and pricing are 

generally substantially below their peak. Properties in stronger, mostly coastal 

housing markets command far more investor interest than other areas. 

Impact of Rising Energy Prices 

Living costs are not limited to the costs of shelter. Families also must pay for utility costs as well as the transportation costs of getting to and from work and around 

town. Research conducted by the Center for Housing Policy and the Center for 

Neighborhood Technology found that moderate-income working families (incomes of 

$20,000 to $50,000 in 2000) in the 28 metro areas studied actually spent slightly 

more for transportation (30 percent of income) in 2000 than their combined housing 

and utility costs (28 percent of income), with the costs for both heavily dependent 

on how close they lived to jobs and public transportation (Lipman 2006). Cities like 

New York City, with high housing costs, often had comparatively low transportation 

costs, while cities like Houston and Cincinnati, with low housing costs, often had 

comparatively high transportation costs. 
41 

While updated data on the combined burden of housing, transportation, and utility costs will not be available until next year, one thing is clear: Low-and moderateincome families are highly vulnerable to rising energy prices. Everyone will pay 

more in utility costs as energy prices rise, reducing affordability even further. Families that live far from their places of employment and in auto-dependent communities will bear a double burden as their transportation costs rise along with their 

utility costs. 

Conclusion 

Housing prices have fallen sharply over the past several years. For those buying 

a home today, affordability has certainly improved. However, affordability has not 

improved for America’s renters and owners more generally. For renters as well as 

homeowners who stay in place, monthly housing costs have largely remained stable 

or risen, while unemployment and under-employment have reduced incomes for 

many. The rising demand for low-cost units and the sharp drop-off of multifamily 

production in recent years have exacerbated the already significant shortage of affordable and available units. In short, far from improving it, recent economic and 

housing market trends have significantly worsened housing affordability for America’s low-and moderate-income households. Rising energy prices will likely further 

exacerbate families’ affordability challenges in the years to come. 
42 
43 

Works Cited 

Housing Assistance Council, ‘‘Housing in Rural America’’, Washington, DC: Author, 

2010. 

Lipman, Barbara, ‘‘A Heavy Load: The Combined Housing and Transportation Burdens of Working Families’’, Washington, DC: Center for Housing Policy, 2006. 

Marcus & Millichap Real Estate Investment Services, ‘‘Real Estate Investment Research: National Apartment Research’’, Phoenix, AZ: Author, 2011. 

Sermons, M. William, and Peter Witte, ‘‘State of Homelessness in America: A Research Report on Homelessness’’, Washington, DC: National Alliance To End 

Homelessness and Homelessness Research Institute, 2011. 

U.S. Department of Housing and Urban Development, Office of Policy Development 

and Research, ‘‘The 2009 Annual Homeless Assessment Report to Congress’’, 

Washington, DC: Author, 2010. 

U.S. Department of Housing and Urban Development, Office of Policy Development 

and Research, ‘‘Worst Case Housing Needs 2009: Report to Congress’’, Washington, DC: Author, 2011. 

Wardrip, Keith, ‘‘Housing Landscape 2011: An Annual Look at the Housing Affordability Challenges of America’s Working Households’’, Washington, DC: Center for 

Housing Policy, 2011. 

I am pleased to acknowledge the assistance of Keith Wardrip, a senior research 

associate at the Center for Housing Policy, and Ethan Handelman, Vice President 

for Policy and Advocacy at the National Housing Conference, in preparing this testimony.