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♪ ♪ KATKO: Welcome, America, to "Balancing Act", the show that aims to tame the political circus of two-party politics.

I'm John Katko.

This week, the housing affordability crisis and what's being done about it.

In the center ring, Zillow's chief economist, Mischa Fisher, will fill us in.

On the trapeze, Congressional Housing Subcommittee members Emanuel Cleaver and Monica De La Cruz will discuss the Housing for the 21st Century Act and what it means for house hunters.

Plus, I'll give you my take.

But first, let's walk the tightrope.

♪ ♪ Is the American Dream still a reality, or has lack of affordability turned it into a nightmare?

In the 1980s, the typical first-time homebuyer was in their late 20s.

Today, they're around 40 years old.

Look, it's never been too simple to get your foot in the door of a new home.

In 1981, the 30-year fixed mortgage rate hit a staggering 18.63%.

But the cost of an average home was around $60,000, and wages generally kept pace with prices.

If you could swing that initial payment, you could build equity as rates declined through the '90s.

Then things shifted.

Lower rates and lax lending standards fueled the housing bubble of the early 2000s.

Prices soared, and when the bubble burst in 2008, it triggered a global financial meltdown.

Home values plummeted, millions faced foreclosure, and critically, construction slowed to a halt.

In 2020, mortgage rates dropped.

The pandemic and reduced remote work drove prices up.

When the Fed hiked interest rates to fight inflation, the golden handcuff effect set in.

Current owners won't sell.

Why should they?

Why would you trade a 3% mortgage for a 6% one?

The result: the National Association of Home Builders estimates we're short at least 1.5 million single-family homes.

Renting isn't the answer either.

Zillow reports single-family home rents have gone up 42.9%, almost double the rise in median income.

Why don't we build our way out?

For starters, the starter home is now an endangered species.

In the '70s, they made up 40% of new builds, but today they are virtually nonexistent.

There's little profit in starter homes, creating a disincentive for developers.

And if you're recently out of school, saddled with student debt and working gig economy jobs, saving for a down payment is nearly impossible.

There are some lifelines, though, including support through the Federal Housing Administration, or zero down payment loans for veterans.

And recently, the House of Representatives put down their swords for a change and passed the Housing for the 21st Century Act in an overwhelmingly bipartisan manner.

I'll talk to the architects of that bill later in the show.

First, let's take a walk through this subject with a real estate expert in the center ring.

♪ ♪ KATKO: Joining me now is the chief economist at Zillow, Mischa Fisher.

Mischa, welcome to the show.

I'll get right to it.

You know, I have three boys, two of whom are in their late 20s, and for them it seems like it's so hard to even think about buying a home.

Is it really that bad out there for young buyers?

FISHER: It is really that bad, as they're feeling.

Now, it's gotten a little bit better over the last couple of years, but it really is quite a problem for prospective buyers to enter this housing market.

And if you look back, it hasn't always been this way.

In 2019, before COVID, before the pandemic, a typical first-time buyer with a 20% down payment could afford the monthly mortgage payment on a typical home, and it would be about a quarter of their income.

So they were not housing-burdened.

They had room left over in their budget for the other necessities in life.

And what's really changed over the last several years - and it got worse particularly right after the pandemic - was the increase in that monthly mortgage payment.

That monthly mortgage payment has roughly doubled since 2019.

KATKO: And that's because of the interest rate, right?

FISHER: Interest rates and prices.

It's gone up as a combination of both of those things.

And at the same time, incomes have not doubled.

Incomes are up about a third.

So that's why people are feeling like it's so out of reach, because of the huge run-up in that monthly price.

KATKO: So let's take the two components separately.

First of all, quickly with the interest rates.

They're around 6% now.

Do you see them going appreciably downward?

I mean, it almost seems like for so long they were almost artificially too low, and now they're 6% - that doesn't sound like a crazy amount-but are they going to go down from there, do you think?

FISHER: We're expecting them to come down a little bit this coming year.

We're not expecting them to go back to 4 or 5%, certainly not 3%.

We are expecting them to come down right to around six, maybe even a little bit lower than six this coming year.

We've already seen progress.

So that's the other flip side and why people shouldn't necessarily completely despair about the current state of the housing market, is that affordability has actually been improving.

It is still very difficult, but it's the best it's been in the last three years, because in large part interest rates have come down by over a point in the last year.

KATKO: Now, is it fair to say that they're not building entry-level homes anymore, new construction homes?

Is that right?

FISHER: That's partially right.

It really depends on where you are, but what you're getting at actually speaks to a larger truth about the root of the problem.

Housing affordability is at its core a supply problem.

And if you go back 20 years-which might be a long time for some viewers to remember-but if you go back 20 years to the housing crash and the global financial crisis, we were building in 2006 about 2.2 million homes per year.

That was the rate.

When that crash happened, we dropped down to less than half a million a year as the rate.

So we're talking a 75% reduction in the rate of new home construction, and we have not gotten back to that rate since.

Even with the building boom of the last couple of years, we're still employing fewer people in residential housing construction than we were before that crash.

And so as a result, we're just not building enough of all types of homes.

And that's why we estimate there's about a 4.7 million home shortage right now across the national market because of this lack of building.

So it's true that we have an absence of supply in that entry-level category, but we really have an absence of supply across the whole spectrum in lots of categories.

So let's talk about what the KATKO: So let's talk about what THE buyers need in order to buy A home at any price.

Is a 20% down payment requirement still a hard and fast rule?

Are there exceptions?

FISHER: It's not a hard and fast rule, and I think everybody should look at their own financial situation and recognize that there's no one-size-fits-all approach to how much you should spend.

So down payment programs are available.

Obviously, if you go on Zillow, you can see those when you browse listings.

We have down payment assistance programs right there.

And you can get away with 10 or 5% down in many cases.

You just want to understand the trade-offs of what you're doing.

You're going to have a slightly higher monthly payment, but of course it might mean you get into the market sooner, and it might mean you can preserve some rainy-day emergency fund as well.

So you don't necessarily need a 20% down payment, but what you really want to do is start really early when you're thinking about this, partner with a great local buyer's agent, and use them as your consultant and your partner and your advocate to help you navigate these trade-offs.

KATKO: So, of course, if you're a veteran, like one of my sons, you're able to buy a first-time home with a VA bill, which I helped pass-one iteration of it, at least-with no money down, and that's wonderful for veterans, but it's not available to the public as a whole, is it?

FISHER: No, and that's one of the things we do to make sure that people feel that they're really getting a lot of value out of that service.

And so I think that's a wonderful thing we do.

But even if you're not a veteran, you still have some of these other options available to get your down payment into the 5% range.

In some cases, you can be as low as 4 or even 3.5 percent.

So there are other options for people, even if you're not a veteran.

KATKO: So what about this so-called lock-in effect, where you have a lot of mortgage holders with a 3% mortgage rate that don't want to sell their home and have to refinance at another rate?

Does that cause part of the problem as far as inventory availability?

FISHER: It does.

Right now, that problem is really slowing down a lot of the new inventory growth in the market.

Now, inventory has improved.

Again, these trends are bad relative to what they were, but they're improving, so people should hold that duality in their mind when they think about the market.

It is getting better, but still not great.

And as rates get lower, that's one of the things that we're forecasting, is that more people will then find it less painful to list their current home for sale and go find another one, and we'll hopefully get unstuck in terms of the normal market flow where people upgrade their homes depending on what stage of life they're in - where they go from that entry level to the next one.

Right now, similar to the labor market, you just don't see a lot of movement.

Everybody's kind of staying put.

KATKO: So what about those renters-and there seems to be an awful lot of them-that are waiting for home prices to fall, so they're going to continue to rent until the prices fall?

Is that a good idea, or is that kind of fool's gold a bit?

FISHER: It really depends on one's personal situation.

And so if you're a renter and you're in the stage of life where you think you're going to move again in six months or 12 months or switch cities, or you haven't formed a family yet and you're still exploring what you want to do, renting can be a great choice, right?

We shouldn't understate that.

But long term, if you know where you want to be, the flexibility you get when you put down roots and you buy a home and you lock in those housing costs and you hedge against inflation going forward-that's a very, very powerful tool.

In terms of the basic math of it, though, the basic math has changed since 2019.

So a renter today actually has a smaller monthly payment than they would if they were owning.

That hasn't always been the case.

It used to be that you'd actually have a smaller monthly payment if you owned, but then the down payment was your barrier.

Right now, it's actually just a smaller monthly payment.

So it really depends on what stage of life you're in and what your desires are.

If you do want to own, then you should start early and start prepping the potential down payment that you need to get into the market.

We do expect that affordability will continue to improve.

So it's not a fool's errand.

KATKO: It seems like in my generation, by the time we were 30, almost all of us had owned a condo or a home or something, and now that age is close to 40.

So what's the biggest mistake first-time homebuyers make nowadays?

FISHER: I think the biggest mistake first-time homebuyers make right now is not getting prepared ahead of time, because it's painful buying a house sometimes, right?

There's a lot of ups and downs.

It's an emotional roller coaster.

You want to make sure you're doing it right.

So you want to make sure you're preparing.

And that means you want to really have a good sense of what it is you desire, what your necessary attributes of a house are, get the location right, make sure you're not overburdening your monthly payment.

All of those things are downstream of how well you're preparing.

So make sure you're preparing early and don't make the mistake of jumping into it.

KATKO: Does it matter whether it's a condo versus a freestanding home versus a townhome?

Or is it just that it's good to get into the market when you can and start letting your money go to work?

FISHER: I think it really depends, again, on what your desires are, what works for your lifestyle.

If you are getting into a condo, you want to make sure you're monitoring what your condo fees and insurance are going to be like, so that you don't have those on top of your monthly mortgage payment and there are no surprises.

But if you want to avoid maintenance and you don't want to have to mow your lawn and you want something that's lower stress in terms of the regular everyday aspects of homeownership, then a condo or a townhouse can be a great choice.

If you want to have a yard and if it's really important to you that if you have a growing family that kids can play outside on a quiet street, then obviously you want to be looking at single-family houses.

What's happening in every local market, though, is different, and that's why I really stress this point about finding that great local buyer's agent early to help you navigate that and talk through all of those trade-offs so that you can make a smart choice.

KATKO: So how do we fix this crisis?

Do we just start building more houses, incentivize builders to keep building houses?

What do we do to try and fix this?

FISHER: I mean, the quick answer you touched on is, yeah, we need to build more.

Housing affordability is at its core a supply challenge.

So right now you're seeing a lot of discussion about what we can do to improve supply, and I think that's really encouraging.

So policy like zoning reform, tax incentives, reducing red tape-all of these things are very beneficial over the long term to speed up the rate of building.

And of course, encouraging people to go into the trades and work in residential construction is also something that can help get that labor force up and build more.

And then also there is a little bit of room that's improved already on the buyer side with what's happened with mortgage rates.

So mortgage rates have come down by a point, and there's room for them to come down a little bit further.

And as that happens, we're going to see more supply come off the sidelines from the existing stock, not just new construction, as that rate lock effect dies down.

KATKO: Mischa Fisher, chief economist at Zillow, thanks for joining us my friend.

FISHER: Thanks, John.

For more on the housing affordability crisis and what the federal government is proposing, let's take to the trapeze.

♪ ♪ Passed the House by a staggering 390 to 9 margin, the Housing for the 21st Century Act now has to make its way through the Senate.

It's a rare moment of bipartisan unity aimed at solving the national housing crisis.

Here to break down the details are two of the bill's architects: Missouri Democrat Emanuel Cleaver, the ranking member of the Housing Committee, and Texas Republican Monica De La Cruz, vice chair of the Financial Services Committee.

Welcome to both, my friends.

Folks, the housing crisis has been brewing for years.

Why this bill now?

CLEAVER: The housing crisis is arguably the number one domestic issue facing us.

And I think we put things aside.

I mean, those of us who pull the oars of significant legislation don't have time to rock the boat.

So we got together and worked on a piece of legislation.

Mike Flood and I - and this is like two weeks after we went into this session - we went out and had dinner together and started moving and talking about housing and legislation.

He was the new chair of the committee.

And we hit it off quite well and put some legislation together that will take away a lot of the burdensome components that frighten developers and builders away.

So I feel very good enough.

I think the Senate will have a difficult time not going along with a vote that was so lopsided.

KATKO: So, Monica, you played a role in this as well.

What role did you play and why?

DE LA CRUZ: Well, I am very excited about the 21st Century Act because, as Mr.

Cleaver says, this is an issue all over America.

The reason I'm very excited about it is it has three provisions that came from three bills that I initiated and sponsored.

One of them has to do with the FHA loan limits and modernizing those loan limits.

Can you believe it's been 20 years since the loan limits have been modernized?

And what this ultimately is going to mean is that more families will get housing because of that, and in addition to that it will reflect the true cost that our builders incur.

The second provision that is mine is one that has the USDA, the VA, and the Veterans Administration working together so that when a veteran applies for a mortgage, they will immediately know what loan products are out there for them.

And this is transformational for our veterans.

Of course, last but not least -- I'm sorry, that was for veteran loans.

The third thing is the coordination between HUD, the VA, and USDA, and what that just does is streamline the communication process to make it easier to bring loans.

KATKO: To pass the bill there had to be compromise.

What is one thing each of you had to concede that you wish was in the bill?

CLEAVER: Well, we actually wanted to make sure, if possible, that we would be able to get some funds in this legislation that would allow us to expand the Section 8 program.

Those are certificates that are given to individuals who are either low income or no income, where they are able to get on-site housing, which means in public housing sections of the city, or housing that would be scattered site.

So we weren't able to get it in the legislation.

KATKO: Emanuel, I know in my hometown, the Section 8 backlog is horrendous, so that's something maybe you can keep working on down the road.

But Monica, is there something that you would like to have seen in the bill that you weren't able to get in that you're going to keep working on?

DE LA CRUZ: Well, I think there are a lot of great initiatives in this bill that will actually positively affect all Americans.

It's going to get Americans into housing faster.

It's going to cut burdensome regulation.

It's also going to help our community base to increase their loans.

And at the end of the day, what we want to do is lower costs for all families.

And I'm glad that we were able to work in a bipartisan manner in order to get this done.

CLEAVER: So, Emanuel - Please, go ahead.

CLEAVER: What reminded me, you and I had a bill on Section 8 a couple of years ago.

KATKO: I remember that, my friend.

CLEAVER: It's been four years.

So we were going to work together.

I appreciate you for the fact that you always wanted to try to get bipartisan legislation.

We weren't able to get that across the fence line, but I appreciate the fact that we were able to work together.

KATKO: So Emanuel and Monica, Monica, go back to you briefly.

Regulatory barriers, you touched on it.

Is there any other regulatory barrier that you've addressed in this bill that helps make it a bit easier to move things along?

DE LA CRUZ: Well, I think there are so many great parts of this bill, and you know when you have a bipartisan bill, we often say that when someone walks away from the bill a little bit unhappy but mostly happy, then it's a win for everybody.

And I think at the end of the day Americans want to see more housing options.

They want to see lower costs.

We want a market-driven product which will stimulate the economy, and this 21st Century Act does that.

It gets our base involved by increasing the opportunity for increased mortgage lending.

So at the end of the day I think this is a win, win, win situation.

KATKO: So, Emanuel, zoning, that's been a big issue as far as new construction goes.

Are there any changes in store for zoning in the bill?

CLEAVER: It inhibits development, but we're still struggling with that issue because the question always comes: do you want to do what Houston has done, which is essentially eliminate all zoning?

And I think our committee came to the conclusion we didn't want to go into those dangerous waters.

But streamlining HUD regulations and EPA regulations will encourage developers to venture into the federal funding of housing a lot easier because now we substantially streamlined the Environmental Protection Agency participation.

For example, we have some land where houses used to exist and they have gone through the whole process with EPA - the phase one study, that is, the study in the soil and so forth.

And what happens is you get ready to build another house and the city comes up and says, well, you got to do a phase one again.

Well, it was done 20 years ago or 15 years ago, whenever, and you're going to make us do it over again?

Well, this legislation says no.

We're not going to put developers into it because all it does is run developers away.

KATKO: Andrew, sounds like a lot of common-sense stuff.

You know, Monica, we've got about a minute left here.

Let's talk briefly about financing.

It seems to be a major problem overall.

Has this bill addressed a financing issue at all?

I know they do with respect to veterans, but what about others?

DE LA CRUZ: Well, look, I'm very proud that a piece of legislation that I recently passed, which is the Disabled Veterans Housing Support Act, helped with financing and getting our veterans off of the streets and into the homes that they desperately needed by excluding their service disability income from the HUD application.

Congressman Cleaver mentioned this again, modernizing HUD, streamlining HUD, was of significant importance to the 21st Century Act.

And I think that really is a game changer for all Americans.

It was a huge bipartisan issue that we both saw we needed to overcome, and I think this bill actually did the work that needed to be done when it comes to modernizing.

KATKO: You know, I want to commend both of you - and quite frankly all the members of Congress who worked on this bill and passed it.

By all accounts, Congress these days has an awful lot of division in it.

But you know what?

Americans can look to you and the people behind this bill and say that not everything is rotten in Denmark here.

Things are getting better up on the Hill, at least at times.

And I urge you both to keep pushing, and I'll say some prayers it gets past the Senate too.

A lot of people need this bill passed.

So I'm going to thank you both.

Emanuel Cleaver and Texas Representative Monica De La Cruz, thank you so much for your time on the trapeze.

♪ ♪ The American dream of the last century always seemed to include at its core buying a home and building equity.

For millions of Americans today, that dream feels like it's on an extended hiatus.

With fewer available starter homes, first-time buyers are being pushed toward older homes.

Right when inventory is tight, prices have surged and interest rates are higher.

Many younger Americans feel like homeownership is a dream that has been dashed.

But America has faced what appeared to be intractable problems before - the Great Depression, the 2008 financial crisis.

Different eras, different causes, but the same hard truth.

When the ground shifts beneath the economy, families feel it first and they feel it hard.

And that's the bad news.

The good news is that America also has a track record of finding solutions, especially when we work together, as we saw with the bipartisan housing bill we just discussed.

It doesn't solve the crisis overnight, but it is a flicker of hope.

And if that flicker becomes a flame, and we fan the flame of consensus around practical steps to expand housing and restore affordability, I believe that we can reignite the American dream and transform it into the American dream come true.

And I hope you agree.

And that's my take.

That's all for this week, folks.

To send in your comments for the show or to see "Balancing Act" extras and exclusives, follow us on social media or go to balancingactwithjohnkatko.com.

Thanks for joining us.

And remember, in the circus that is politics, there's always a Balancing Act.

I'm John Katko.

We'll see you next week, America.

♪ ♪ ♪