On the Nature of Self‐Assessed House Prices

In models of optimal household behavior, the value of housing affects consumption, savings and other variables. But homeowners do not know the value of their house for certain until they sell, so while they live in their home they must rely on local house price data to estimate its value. This article uses data from the recent housing boom and bust to demonstrate that changes in households' self‐assessed home values are strongly consistent with the predictions of a model in which households optimally filter available house price data. Specifically, we show that self‐assessed house prices did not increase as rapidly as house price indexes during the boom and did not decline as severely during the bust. A Kalman filter model nearly perfectly replicates these data. These findings have direct implications for economists studying asking prices during booms and busts, optimal default decisions and other key housing‐related phenomena.     

The Influence of Household Formation on Homeownership Rates Across Time and Race

Homeownership rates equal the number of households that own homes divided by the number of households in the population. Differences in the propensity to form a household, therefore, may contribute to changes in homeownership rates over time in addition to long-standing racial gaps in homeownership. We examine these issues on an age-specific basis using data from the 1970 to 2000 public use microsamples of the decennial census. Results indicate that lower headship rates tend to reduce homeownership rates. This pattern is most notable for individuals in their early and mid 20s. For these individuals, declining headship rates between 1970 and 2000 reduced homeownership rates by three to five percentage points. Moreover, 2000 African American headship rates narrow white–black gaps in homeownership by roughly three percentage points, whereas 2000 Hispanic headship rates widen white–Hispanic gaps in homeownership by two to three percentage points. Thus, controlling for differences in headship behavior, white–black homeownership gaps are somewhat more severe than previously recognized, but the reverse is true for white–Hispanic gaps.     

Refinancing Trends among Lower Income and Minority Homeowners during the Housing Boom and Bust

This article examines trends in mortgage refinancing activity during the housing boom and bust, with a focus on homeowners in lower income and minority market (LIMM) areas. Unlike any other period in recent history, during the boom LIMM homeowners refinanced their mortgages more frequently than non‐LIMM homeowners. This occurred primarily among borrowers for whom the refinance option was not in‐the‐money, and it is likely attributable to the concurrent growth of subprime, cash‐out refinancing. Following the 2007 mortgage market collapse, however, LIMM homeowners were less likely to refinance. This can be explained in part by systematic differences in home equity levels across borrowers.     

Risk Segmentation of American Homes: Evidence from Denver

This article empirically examines the segmentation of house price risk across 99 ZIP‐code‐delineated neighborhoods in metropolitan Denver. The house price risk in each neighborhood is measured with the temporal variation of quarterly appreciation rates of the neighborhood house price index over the 2002–2007 period. Cross‐sectional regressions of neighborhood house price risk on the median household income and the percentage of population in poverty from the 2000 census data for the same neighborhoods provide strong evidence that the house price risk is significantly higher in low‐income/poor neighborhoods. Subperiod analyses further indicate that the risk segmentation exists in both a booming period (pre 2005:2) and a busting period (post 2005:3). The results indicate that homeownership can be a much riskier investment for low‐income/poor households.     

Variation Across Price Segments and Locations: A Comprehensive Quantile Regression Analysis of the Sydney Housing Market

Standard house price indices measure average movements of average houses in average locations belonging to an average price segment and hence obscure spatial and cross‐sectional variation of price appreciation rates even within a single metropolitan area. This article combines penalized quantile regression techniques with the hedonic imputation approach to reveal such kind of variation. The method is applied to house transactions from Sydney between 2001 and 2014. The analysis finds significant variation across sub‐markets over time and in particular during the boom‐and‐bust cycle peaking in 2004. Appreciation rates were highest for suburban, low‐priced and lowest for inner‐city, high‐priced houses.     

Mobility, Residential Location and the American Dream: The Intrametropolitan Geography of Minority Homeownership

This article applies data from Washington, DC, Chicago and Los Angeles to estimate three-level nested multinomial logit models of household mobility, residential location and homeownership tenure choice. Model simulation indicates that shocks to income can significantly elevate the homeownership attainment of minority households; however, their urban settlement and homeownership patterns remain substantially more concentrated than those of whites. Simulated equilibration of black economic status with that of whites results in an approximate doubling of homeownership rates among black movers to central city areas. In contrast, homeownership rates among black movers to suburban and outlying areas lag far behind those of whites.     

Housing Tenure Choice in Australia and the United States: Impacts of Alternative Subsidy Policies

This article compares the homeownership rates of young households in Australia and the United States and evaluates the impacts of the two countries' different approaches to subsidizing homeownership. Since about 1950, Australia's rate of homeownership has consistently been higher than that of the United States. The homeownership rate for young adults is also significantly higher in Australia. While the United States allows mortgage interest and property taxes to be deducted from income for tax purposes, Australia has provided cash subsidies for down payments and mortgage payments. We conclude that differences in housing costs and household characteristics do not explain differences in ownership rates. We also conclude that differences in subsidy policies have only a minor impact on ownership rates.     

Alternative Lending Channels and the Crisis in U.S. Housing Markets

To what degree has the development of alternative mortgage funding channels promoted the recent boom and bust in U.S. housing markets? Past research examined whether Alt‐A and subprime market shares are correlated with the housing bubble. This article expands the analysis to include the share of specific “alternative” lending terms and finds that the shares of interest‐only and negative amortization loans are important factors in explaining the housing bubble. This result suggests that research on the housing market bubble should focus on the impacts of loan contract terms rather than loan channel.     

–Nonrecourse Mortgage and Housing Price Boom,Bust, and Rebound

This paper investigates the impact of –nonrecourse vs. recourse mortgages on housing price dynamics in major U.S. metropolitan statistical areas for the period from 2000 to 2013. We find evidence that –nonrecourse states experience faster price growth during the boom period (2000–2006), a sharper price drop during the bust period (2006–2009) and faster price recovery in the rebound period after a crisis (2009–2013). Moreover, the volatility of housing prices is higher in nonrecourse states than in recourse states, particularly during the rebound period.     

Government Policies,Residential Mortgage Defaults and the Boom and Bust Cycle of Housing Prices

We develop a micro‐based macromodel for residential home prices in an economy where defaults on residential mortgages negatively affect housing prices. Our model enables us to study the impact of subprime defaults on prime borrowers and the impact of various government policies on the housing market boom and bust cycle. In this regard, our key conclusions are that (i) there is a contagion effect from subprime defaults to prime defaults due to the negative impact of subprime defaults and (ii) monetary policy is the most effective tool for decreasing mortgage defaults and increasing aggregate home prices in contrast to alternative government fiscal policies designed to loosen mortgage credit.     

A Tale of Two Tensions: Balancing Access to Credit and Credit Risk in Mortgage Underwriting

Over the years 2000–2007, mortgage market underwriting conditions eased in response to public policy demands for increased homeownership. This easing of acceptable credit risk in order to accommodate increased access to credit, when coupled with the unanticipated house price declines during the Great Recession, resulted in substantial increases in delinquencies and foreclosures. The response to this mortgage market crisis led to myriad changes in the industry, including tightened underwriting standards and new market regulations. The result is a growing concern that credit standards are now too tight, restricting the recovery of the housing market. Faced with this history, policy analysts, regulators and industry participants have been forced to consider how best to balance the tension inherent in managing mortgage credit risk without unduly restricting access to credit. Our research is unique in providing explicit consideration of this trade‐off in the context of mortgage underwriting. Using recent mortgage market data, we explore whether modern automated underwriting systems (AUS) can be used to extend credit to borrowers responsibly, with a particular focus on target populations that include minorities and those with low and moderate incomes. We find that modern AUS do offer a potentially valuable tool for balancing the tensions of extending credit at acceptable risks, either by using scorecards that mix through‐the‐cycle and stress scorecard approaches or by adjusting the cutpoint—more relaxed cutpoints allow for higher levels of default while providing more access, tighter cutpoints accept fewer borrowers while allowing less credit risk.     

Inflation,Taxes, and the Demand For Housing*

Inflation affects homeownership and housing adversely through the “real-payment tilt” of the conventional mortgage. Expectations of additional housing price appreciation, however, may induce households to invest in housing. This paper uses household data to estimate the demand for homeownership and housing, and it takes explicit notice of expectations of housing price appreciation. The results indicate for each 1% increase in the inflation rate that the conditional probability of purchase falls by 3%. Interest rate effects outweigh appreciation and tax effects. Given the decision to purchase, housing appreciation expectations do not have large effects on the amount purchased.     

Explaining the Small Employment Effects of the Minimum Wage in the United States

This paper reviews the most recent wave of research—roughly since 2000—on the employment effects of the U.S. minimum wage and concludes that the weight of evidence points to little or no employment response to modest increases. The paper then examines eleven possible adjustments to minimum‐wage increases that may explain why the measured employment effects are consistently small. Given the relatively low cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be sufficient to avoid employment losses, even for employers with a large share of low‐wage workers.     

Homeownership Determinants for Chinese Americans: Assimilation, Ethnic Concentration and Nativity

Chinese homeownership rates in the Los Angeles Consolidated Metropolitan Statistical Area adjusted by socioeconomic and housing market characteristics are, on average, 18 percentage points higher than those of native white households. This finding runs contrary to most immigration literature, which suggests that immigrants usually lag behind the host society in measures of economic well-being. This study focuses on two additional factors, which most economic studies of homeownership choice ignore, that may play a role in helping Chinese households achieve high homeownership in ways that other immigrant groups do not. The results of this analysis find that the high homeownership rates cannot be explained by the English skills of households. The cultural influence of homeowning peers may have partially contributed to the higher homeownership of Chinese households. While living in ethnic Chinese communities lowers homeownership rates, in general, it helps improve the likelihood that Chinese immigrants will own a home. Finally, we find that there is great diversity among Chinese subgroups with respect to their likelihood of owning a home, but very little diversity with respect to the education and income level of Chinese households across subgroups.     

Introduction to Special Issue: Government Involvement in Residential Mortgage Markets

The Federal Reserve Bank of Atlanta's Center for Real Estate Analytics and the University of North Carolina at Charlotte's Center for Real Estate jointly sponsored a research conference held in Charlotte on December 5–6, 2013. The conference theme was “Government Involvement in Residential Mortgage Markets” and included papers and discussions from an array of economists employed in academia, government, think tanks and the private sector. This special issue of Real Estate Economics is composed of seven of the ten papers presented at the conference. The research is concentrated on the recent U.S. housing boom and bust, with a particular focus on the role of government policy.     

Distributional Consequences of Alternative Mortgage Instruments

One of the major factors hindering the introduction of alternative mortgage instruments is the possibility of adverse consequences to certain groups of households seeking to obtain credit for homeownership. This study examines this issue through an analysis of cross-sectional household data obtained from the 1970 Survey of Consumer Finances. Using multiple regression analysis, a series of structural demand models are derived and estimated. These models relate the probability of homeownership, levels of housing consumption, mortgage credit usage, and downpayment to income, assets, and other socioeconomic variables, to variables representing the relative price of housing and homeownership, and to certain variables representing the present value and cash flow costs of mortgage credit. Several mortgage-related variables are found to be influential in housing demand decisions. These models are then used to simulate alternative instrument introduction. The graduated-payment and price-level adjusted mortgages are predicted to be superior to the current instrument of mortgage finance in encouraging homeownership, housing consumption, and the use of mortgage credit among all household classes. The standard variable-rate mortgage, especially one tied to a short-term interest rate, is predicted to be inferior to the standard instrument, with the most adverse impacts upon lower-income, young, elderly, and black households.     

Is Timing Everything? Race,Homeownership and Net Worth in the Tumultuous 2000s

We use the Panel Study of Income Dynamics to estimate how net worth was affected among low‐ and moderate‐income households who became first‐time homebuyers at different points during the volatile 2000s. We address selection using propensity score matching and estimating difference‐in‐difference models, and use quantile regressions to account for the skew in net worth outcomes. Results highlight the significance of race in the relationship between first‐time home buying and net worth during the decade. Although timing was critical to the short‐term trajectory of net worth for whites, total net worth declines for black first‐time homebuyers regardless of economic climate. The most dramatic differences between black and white new homebuyers is their neighborhood locations, with blacks purchasing in predominantly black neighborhoods with lower housing prices and price appreciation, and lower and declining rates of homeownership.     

The Effects of Homeownership on Children's Outcomes: Real Effects or Self‐Selection?

This article examines whether there is a “homeownership effect” for lower‐income racial and ethnic groups who have been the target of public policies to expand homeownership. We use two different methods to account for selection, statistical matching and instrumental variable analysis; test direct and indirect (mediator) effects of homeownership on children's cognitive achievement, behavior problems and health using the Panel Study of Income Dynamics and its Child Development Supplement; and replicate the main effects tests using the National Longitudinal Survey of Youth. We find little evidence of beneficial homeownership effects and suggest that previous analyses may have mistaken selection differences for the effect of homeownership itself.     

The Dynamics of Homeownership: Eliminating the Gap Between African American and White Households

This article uses a sample of young renters from the Panel Study of Income Dynamics and a continuous‐time econometric model to explore not only the initial tenure transition to first‐time homeownership, but also subsequent possible tenure transitions to a second owned home, back to rental tenure and, indirectly, to a second owned home from rental tenure. Once estimated, the predicted probabilities of these transitions are used to calculate the probability of homeownership at various times for households in the sample. These estimates are done separately for African Americans and whites for two different 11‐year time intervals, 1987–1997 and 1993–2003. A primary result is that if African American education, income, net wealth and savings behavior could be brought in line with that of white households the majority of the racial gap in homeownership could be eliminated in either time period.     

Do Conspicuous Consumers Pay Higher Housing Premiums? Spatial and Temporal Variation in the United States

This study is the first to examine the relationship between conspicuous demand and housing price dynamics. We hypothesize that conspicuous consumers would want high‐end homes to signal their wealth and this housing consumption behavior would induce greater deviations from fundamental house prices. We test this by using a unique dataset that matches the consumers’ appetite for nonhousing luxury goods from Google Insights for Search to housing premiums that they pay for high‐end houses in U.S. Metropolitan Statistical Areas (MSAs) during 2004–2011. The estimation results demonstrate that controlling for a wide range of MSA demographic and economic characteristics, conspicuous demand has a significant, positive relationship with housing premiums. This relationship varies spatially and temporally. Conspicuous demand has a stronger relationship with a price increase in high‐end homes in MSAs with a steady, higher housing premium than in MSAs with a volatile, lower premium during the boom period. In MSAs with a steady, higher housing premium, the relationship remains significant even during the bust period, potentially contributing to maintaining higher housing premiums.