housing market will likely involve shifting some of the burden of adjustment from some parties to others. i greatly appreciate the leadership that the senate banking committee has shown on the profound challenges facing the housing market. for its part, the federal reserve will continue to use its policy tools to support the economic recovery and carry out its dual mandate to foster maximum employment in the context of price stability. in its supervisory capacity, the federal reserve will continue to encourage lenders to find ways to maintain prudent lending standards while serving creditworthy borrowers. thank you again for inviting me to appear before you today. i would be happy to answer any questions you may have. bis central bankers ’ speeches

elizabeth a duke : the housing market testimony by ms elizabeth a duke, member of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 28 february 2012. * * * chairman johnson, ranking member shelby, and members of the committee, thank you for inviting me to talk about the current situation in housing markets. the federal reserve has a keen interest in the state of housing and has been actively engaged in analyzing issues in the housing and mortgage markets. issues related to the housing market and housing finance are important factors in the federal reserve ’ s various roles in formulating monetary policy, regulating banks, and protecting consumers of financial services. in particular, the failure of the housing market to respond to lower interest rates as vigorously as it has in the past indicates that factors other than financial conditions may be restraining improvement in mortgage credit and housing market conditions and thus impeding the economic recovery. federal reserve staff have been actively working to understand the reasons behind the impairment in housing and mortgage markets and the tradeoffs involved in designing policies that would remove obstacles to normal market functioning. on january 4, 2012, the federal reserve released a staff paper titled “ the u. s. housing market : current conditions and policy considerations, ” which is attached at the end of my written statement. the paper provides information on current conditions in the housing market and analytic background on some housing market issues. although the paper does not include recommendations for any specific policy actions, it does lay out a framework for discussion by outlining some options and tradeoffs for policymakers to consider. my testimony today will be drawn from this paper. six years after aggregate house prices first began to decline, and more than two years after the start of the economic recovery, the housing market remains a significant drag on the u. s. economy. in a typical economic cycle, as the economy turns down households postpone purchases of durable goods such as housing. once the cycle bottoms out, improving economic prospects and diminishing uncertainty usually help unleash this pent - up demand. this upward demand pressure is often augmented by lower interest rates, to which housing demand is typically quite responsive. the current economic recovery has not followed this script, in part because the problems in the housing market are a cause of the downturn as well as a consequence of it. the extraordinary fall in national house prices has resulted in $ 7 trillion in lost home equity, more than half the amount that prevailed