House price appreciation, liquidity constraints, and second mortgages

This paper analyzes how households use second mortgages in response to shocks to housing wealth. Two related questions are examined: Do households use home equity in response to house price appreciation? Are liquidity constraints important for homeowners? A theoretical model shows that liquidity-constrained households respond more strongly to house price changes than unconstrained households. Using PSID, I find noteworthy differences in borrowing patterns of homeowners by the ratio of wealth to income. Low wealth-to-income homeowners exhibit a strong reaction to house price appreciation, whereas high wealth-to-income ones do not. The results indicate the importance of liquidity constraints among homeowners.     

Housing wealth,liquidity constraints and self-employment

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to self-employment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.     

The Limits of Homeownership: Racial Capitalism,Black Wealth,and the Appreciation Gap in Atlanta

In the wake of the 2007–08 housing crash, the Black–white wealth gap reached a staggering 20 to 1. Since then, a growing chorus of influential voices has proposed measures to increase the Black homeownership rate as a means to narrow the gap. Others, however, have argued that the uneven racial geography of home price appreciation necessarily restricts the degree to which Black households, in the aggregate, can build wealth via homeownership. We aim to contribute to these debates by theorizing a racial appreciation gap as a central feature of urban housing markets under racial capitalism, and analyzing how neighborhood racial and income characteristics have structured home price appreciation from before the height of the housing boom (2000–03) to its post-crisis recovery (2014–16). Focusing on the two counties that encompass Atlanta, Georgia, USA—an area famous for Black prosperity—we find that a neighborhood's racial composition has a more salient impact on home price change than its income. Results indicate that when a place is marked as Black, this may itself inhibit home price appreciation, suggesting that an enduring racial appreciation gap may limit the potential for Black homeownership to substantively narrow the racial wealth gap.     

Housing appreciation, mortgage interest rates, and homeowner mobility

This paper presents a model of the optimal timing of tradeup, which considers consumption and investment motives of homeownership. Households determine the optimal timing of trading up so as to maximize their intertemporal utility of both housing and nonhousing consumption. First we consider current homeowners, who already own a house and expect that they trade up to a more valuable house at some point in the future. Housing appreciation tends to induce an earlier optimal timing of trading up. Moreover, housing appreciation makes current homeowners better off in terms of welfare. However, current homeowners suffer from a rise in mortgage interest rates. Second, we consider first-time home buyers, who have decided to buy a house and expect to trade up to a more valuable house in the future. Their initial housing consumption is determined by an initial downpayment constraint. In this case, the effect of housing appreciation on the optimal timing of trading up is ambiguous and, unlike current homeowners, first-time home buyers suffer from housing appreciation. Moreover, as current homeowners, first-time home buyers suffer from a rise in mortgage interest rates. Most of the theoretical analytic results are ambiguous. Accordingly, we perform numerical simulations based on the theoretical model in order to determine the most likely comparative effects for a stylized set of parameters.As is apparent, the model captures the recent observations on homewner mobility and suggests that macroeconomic variables such as housing appreciation and mortgage interest rates effect the optimal timing of trading up and homeowner's welfare. Nevertheless, the model in this paper has several shortcomings, which should be the subject of future research. First, transaction costs are ignored. If transaction costs are incorporated, the lock-in effect from a rise in mortgage interest rates is well explained. However, the general analysis above is not altered in any essential way. Second, multiple moves are not considered in this model. Therefore, we concentrate on the timing of one tradeup as opposed to the timing and frequency of trading up. In a different vein, it would be interesting to test empirically the importance of the effects of macroeconomic variables on trading up by using microdata.     

Housing appreciation (depreciation) and owners’ welfare

This paper extends Frank’s (2006) very simple model to analyze the welfare effects of appreciation and depreciation in a world with borrowing, property taxes, and moving costs. It is shown that appreciation can make homeowners worse off but that even when there is a property tax depreciation can not make homeowners who intend to stay in their house worse off. Our model provides a simple framework that can be used discuss the rationale for alternative policies to aid homeowners during periods of both appreciation and depreciation.     

Do homeowners achieve more household wealth in the long run?

Despite the public’s faith in homeownership as a vehicle for wealth creation, there are surprisingly few empirical studies of the independent impact of homeownership and its duration on household wealth accumulation. This paper provides the first empirical evidence that homeownership, after controlling for other drivers of wealth accumulation, is positively and significantly associated with wealth accumulation over time. Using the Panel Survey of Income Dynamics, it examines the influence of housing tenure choices between 1989 and 2001 on household net wealth levels in 2001 after controlling for initial wealth in 1989, location, income, education, and other family and personal characteristics that might influence the rate of wealth accumulation. Importantly, the models used also control for the tendency of households to accumulate wealth between 1984 and 1989 (five years prior to the studied period). This approach is used to address the possibility that an unobserved variable—the propensity to save or accumulate wealth—may be associated with both the probability and duration of homeownership and the rate of wealth accumulation. All else equal, those who owned homes and owned for longer periods of time had significantly higher household net wealth by 2001. These results are compelling because house price appreciation over the period was near its long-run average while stock gains were above and real rent increases below their long-run averages. Hence, the findings are suggestive of a positive influence of ownership over long periods on net wealth, even during a period when alternative investments produced higher than normal returns and rents grew slowly. This is especially important because the overwhelmingly majority of households do not sell their homes shortly after buying them. In our sample, those who became owners typically owned for 7 years. Furthermore, most households that bought during a period of declining real home values in the early 1990s continued to own their homes for at least eight years and came out well ahead of those who did not own.     

Household borrowing and metropolitan housing price dynamics – Empirical evidence from Helsinki

This article argues that, especially in the absence of sufficient direct data on credit constraints, it is reasonable to add a household debt variable in an empirical model studying housing price dynamics. This is because household borrowing is likely to reveal information regarding the credit constraints faced by households. Moreover, debt may also give information on expected income growth and interest rate movements. The aim of this study is to examine empirically if household borrowing data, indeed, is of importance in a dynamic housing price model. In line with the prior expectations, it is found that housing appreciation in the Helsinki Metropolitan area is Granger caused by the household debt-to-GDP ratio both in the short and in the long run. Causality from the housing market to credit, in turn, seems to run only through a cointegrating long-run relation. While the estimated long-run relation between housing prices, income and debt-to-GDP ratio appears to have remained stable through the sample period (1975Q1-2006Q2), the short-run dynamics changed somewhat due to the financial liberalization in the late 1980s. The stability of the long-run relation implies that the loan data are able to cater, at least to a notable extent, for the effect of the changes in Finnish households’ liquidity constraints on housing demand. In line with previous literature, it is also found that housing price adjustment is sluggish and includes notable backward-looking features.     

Changes in the distribution of house prices over time: Structural characteristics,neighborhood, or coefficients?

Quantile hedonic house price function estimates imply that appreciation rates were higher between 1995 and 2005 for high-priced homes in Chicago. Decompositions of temporal changes in the house price distribution suggest that the types of homes sold and their location do not account for the change in the price distribution. Rather, higher appreciation rates for high-priced homes are explained by differences in the quantile regression coefficients over time.     

Changes in the distribution of house prices over time: Structural characteristics,neighborhood, or coefficients?

Quantile hedonic house price function estimates imply that appreciation rates were higher between 1995 and 2005 for high-priced homes in Chicago. Decompositions of temporal changes in the house price distribution suggest that the types of homes sold and their location do not account for the change in the price distribution. Rather, higher appreciation rates for high-priced homes are explained by differences in the quantile regression coefficients over time.     

Margin trade,short sales and financial stability

We model how leveraged trading activities constrained by dynamic funding availability affect financial stability. In the market, customers trade based on the fundamental value of the risky asset and make full payment for their transactions, while speculators take trading position based on margin, which is constantly adjusted by the financier, the fund provider, according to the price volatility. As a result of equilibrium price discontinuity triggered by dynamic margin requirements, trivial shocks to external supply, wealth or fundamental value can be transmitted into asset price crashes or jumps. We find that tightening margin requirements improves (mitigates) the market liquidity in the bull (bear) market, and that imposing short sale constraints helps prevent the price from falling further when the asset is sufficiently under-priced and accelerate price collapse when the asset is over-priced.

     

House prices, wealth effects, and the Singapore macroeconomy

This paper examines the effect housing wealth has upon aggregate consumption in Singapore. While past research has focused only on changes in private housing wealth, the residential market in Singapore is dominated by the public housing sector. The massive public housing segment can generate potentially different wealth effects from standard private housing markets given the former’s unique institutional features. In particular, public housing owners who sell their units at market rates can repurchase a public flat at subsidized prices whereas private homeowners typically cannot. We estimate the link between consumption expenditure and both private and public housing wealth using a VARX approach for the Q1:1990–Q4:2002 period. We find that changes in private house prices have no significant effect on aggregate consumption. In contrast, public housing wealth effects are larger and more persistent.     

A micro view on home equity withdrawal and its determinants: Evidence from Dutch households

For most households, home ownership is the largest wealth component that has become more accessible through innovation and deregulation in mortgage markets. This paper studies the factors driving home equity withdrawal (HEW) at the household level using Dutch survey data. In the Netherlands, house prices were growing fast and mortgage expenses are to a large extent tax deductible. Expectations and perceptions do seem to play an important role in HEW. Withdrawers tend to be more positive about house price developments and – although having lower income – less concerned about their future economic situation. HEW can have a significant impact on both households and the economy, with most of the equity released being reinvested in the housing sector and only a small share used to finance consumption expenditure.     

Public versus private provision of liquidity: Is there a trade-off?

To what extent is public debt private liquidity? Much policy advice given in the aftermath of the financial crisis rests on the assumption that increasing public debt relaxes borrowing constraints of private households. This is the case for ad-hoc debt limits, which are exogenous to public policy. Instead, if debt limits are fully endogenous, as e.g. in the case of the natural borrowing limit, public debt has no impact. We assume that borrowing limits arise because of limited contract enforceability and are therefore determined as equilibrium outcomes. Using an incomplete markets economy in which households are subject to uninsurable earnings shocks, we show that public debt provides some liquidity, but less so than it would if constraints were imposed ad-hoc. We show that generating borrowing constraints as an equilibrium outcome substantially alters the answers to other important questions, such as for the welfare effects of government debt or its impact on real economic activity.     

Price dynamics,financial fragility and aggregate volatility

Within a general equilibrium framework à la (Long and Plosser, 1983), we investigate the dynamics emerging from the interactions of households and firms that are adaptive price setters and financially constrained. Adaptive price-setting behavior induces micro-founded out-of-equilibrium dynamics along which agents become heterogeneous in terms of prices and wealth. The stringency of the financial constraints determines the regime into which the model settles: either an equilibrium one or a disequilibrium one conductive to financial fragility and aggregate volatility. In this setting, we investigate how the structure of the production network affects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu et al. (2012).     

城市增长控制:实证研究与理论模型

综合了40多年来关于城市增长控制的研究成果,从实证分析角度的总结认为,城市增长控制会改善社区质量,提高城市区的土地价格和住房价格;从城市空间理论角度分析了城市增长控制的理论模型,理论模型可以解释实证结果,城市增长控制会提高城市土地所有者的地租,同时住房价格的提高会减少消费者的其他消费,从而会损坏消费者(尤其是租户)的利益.     

Wealth spurt unlikely to offer much aid to the consumer

• ? UK households are wealthier than ever, thanks to continued growth in house prices and a buoyant stock market. However, the nature and distribution of that wealth means that support for consumer spending from a ‘wealth effect’ is likely to be both small and less than in the past.
• ? In Q4 2016, households' holdings of owner‐occupied property and net holdings of financial assets amounted to £9.2tr, almost 8% up on the level a year earlier. This was equivalent to 719% of annual household gross disposable income, a near‐record high.
• ? A long‐established feature of economics is the concept of a ‘wealth effect’ – the premise that faced with rising wealth levels, households feel more comfortable and economically secure and hence spend more. But the economic literature differs on how large this effect is.
• ? Our own Global Model suggests that the wealth effect is modest, with a 10% rise in wealth boosting consumer spending by only around 0.2%. One reason is that about half of financial wealth consists of highly illiquid assets in pension funds. But this component has recently been the biggest source of growth in wealth.
• ? Given differences in the propensity to consume out of income and wealth, the concentration of financial and housing assets among better‐off households will also act to neuter the size of any wealth effect. The wealthiest one percent of households hold around 20% of household wealth. But the bottom quartile owns only 1.5%.
• ? Meanwhile, the housing market has created an ever‐greater concentration of wealth. The share of households owning their own property fell from 71% to 63% in the decade to 2015. But the share of private renters more than doubled in the same period, from 9% to just over 19%. And the pre‐crisis appetite to finance consumption by borrowing against the value of property shows no sign of returning.

     

The Media's Role in Influencing Perceptions of Housing Values and the Resulting Impact on the Macroeconomy

The housing market is a major component of the economy and persistent negative media reports can adversely affect perceptions and expectations of homeowners as to the value of their home. As a result, households reduce their expenditures and increase their savings in an effort to rebuild lost wealth. In the short run the economy suffers and the recession is magnified. This paper demonstrates, through an empirical study, how negative media reports regarding the deteriorating conditions of the national housing market affects what households feel their housing is worth.     

Does home owning smooth the variability of future housing consumption?

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner’s house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census micro-data, we find that the cross-sectional variation in house values subsequent to a move is lower for home owners who moved between more highly covarying cities. Our preferred estimates imply that an increase in covariance of one standard deviation reduces the variance of subsequent housing consumption by about 11%. Households at the top end of the covariance distribution who are likely to have owned large homes before moving get the largest reductions, of up to 40% relative to households at the median.     

Medicaid and the housing and asset decisions of the elderly: Evidence from estate recovery programs

I examine the impact of Medicaid on elderly housing and portfolio decisions by using recent state-by-calendar-year level variation in the Medicaid treatment of owner-occupied housing assets from the adoption of Medicaid estate recovery programs. Prior to the adoption of these programs, the house, which represents the most important non-pension asset to the elderly, was exempt from determining Medicaid eligibility and served as both a place of residence and a store of wealth. Adoption of estate recovery programs changed the owner-occupied housing safety net by making the house eligible for recovery by the government, which increased the implicit tax of holding owner-occupied housing. Using data from 1993 to 2004 in the Health and Retirement Study on elderly individuals, I find that state adoption of estate recovery programs makes the elderly decrease homeownership by 4.6%, decrease home equity by 15%, and also decrease the housing share of the elderly wealth portfolio. State adoption of these programs results in elderly baseline homeowners being 33% less likely to own their homes at death and more likely to use a trust as a substitute to housing in order to preserve assets and carry out bequest motives at death.     

HOUSE PRICES AND THE ECONOMY

UK house prices more than doubled from 1985 until 1989, with house price inflation over the previous year peaking at 34 per cent in the fourth quarter of 1988. The ratio of house prices to average incomes reached levels which surpassed even those experienced during the 1972-73 house price boom. This sharp increase in housing wealth has been a major factor in the fall in the savings ratio over the past three years. This forecast release examines the prospects for future house price movements, discusses the sources of the recent house price boom and finally considers the possible impact on consumer expenditure.