Zillow Chief Economist Testifies at Senate Hearing on Foreclosure Glut

This morning, Zillow Chief Economist Dr. Stan Humphries appeared before the Senate Subcommittee on Housing, Transportation and Urban Development (part of the Senate Banking Committee) to talk about ways to address the country’s glut of foreclosed properties.

Foreclosures continue to be a huge problem across the country. Almost one in five homes sold in July were foreclosure re-sales, according to Zillow’s Real Estate Market Reports. This is a problem for the housing market as a whole, since the presence of so many foreclosures keeps down the prices of all homes, and it’s a problem for many families who continue to lose their homes.

At Zillow, our first goal is to give consumers an unbiased look at what’s happening in the housing market, and we hope the outcome of today’s debate will best address the needs of consumers by creating long-term fixes to today’s housing market problems.

Today, Humphries summed up his point of view with three points:

• First, policy-makers shouldn’t underestimate the housing market’s ability to repair itself. It’s happening, albeit slowly. While there is a very large pool of previously foreclosed properties in the market, keeping down prices across the board, there is also a booming rental market that’s not lost on investors, who are buying previously foreclosed homes, fixing them up, and renting them out. Working through all of the foreclosure inventory is a slow process, but it’s playing out naturally.
• Second, policy that addresses foreclosures is addressing a symptom of the problem, not the underlying causes of the housing recession: Negative equity and unemployment. These two factors are devastating for homeowners and the housing market as a whole, as they cause continuing foreclosures. Negative equity also traps people in their homes, making it more difficult for them to sell their old homes and buy new ones.
  Negative equity is a tough problem to fix through policy, but unemployment may be a different story. Addressing unemployment will address housing.
• Third, lawmakers need to assure the government does no harm to the recovering market. There is a delicate balance being struck as investors buy up foreclosed homes. Any plan that may upset the balance (such as government entities like Fannie Mae and Freddie Mac renting out their inventory of foreclosed homes) could have a chilling effect on private investment. Since private investment is crucial to the housing market now, disrupting that trend could have a negative long-term impact on the market.

You can see Humphries’ full written testimony over on the Zillow Research page, or watch his testimony here (starts around the 42:00 mark).