Job creation and housing construction: Constraints on metropolitan area employment growth

Differences in the supply of housing generate substantial variation in house prices across the United States. Because house prices influence migration, the elasticity of housing supply also has an important impact on local labor markets. I assemble evidence on housing supply regulations and examine their effect on metropolitan area housing and labor market dynamics. Locations with relatively few barriers to construction experience more residential construction and smaller increases in house prices in response to an increase in housing demand. Furthermore, housing supply constraints alter local employment and wage dynamics in locations where the degree of regulation is most severe.     

Subprime mortgages and the housing bubble

This paper explores the link between the house-price expectations of mortgage lenders and the extent of subprime lending. It argues that bubble conditions in the housing market are likely to spur subprime lending, with favorable price expectations easing the default concerns of lenders and thus increasing their willingness to extend loans to risky borrowers. Since the demand created by subprime lending feeds back onto house prices, such lending also helps to fuel an emerging housing bubble. These ideas are illustrated in a theoretical model, and tentative support is found in empirical work exploring the connection between price expectations and the extent of subprime lending.     

货币和税收政策对我国住房价格的影响——基于VAR模型的实证研究

基于我国1999-2010年房地产市场季度数据,本文建立向量自回归模型(VAR)和向量误差修正模型(VEC),将住房供给和需求同时纳入模型,分析我国利率政策、信贷政策和税收政策对住房价格的影响。结果显示,贷款利率在短期内对住房供给有负效应,但长期效应不明显;贷款规模对住房价格的短期冲击明显,二者之间存在正相关关系;针对保有环节征税可以通过影响住房供给,从而有效抑制住房价格上升。根据我国住房供求特点,应优先选择税收工具,通过促进住房供给实现控制房价的政策目标。     

Stock Market Response to the Financial Regulations in the Mortgage‐Lending Market in Korea

This study investigates the economic impact of the financial regulations that aimed to control the housing market in Korea during the reign of late President Ro's Administration, which had diligently fought against the then speculative bubble in the Korean real‐estate market. We test for the validity of the general prediction that the financial regulations in the form of the loan‐to‐value (LTV) and debt‐to‐income (DTI) restrictions would have adverse impacts on the value of the firms operating in the mortgage‐lending industry. In this event study, we select two critical days as event dates and check whether the stock prices of the financial firms react negatively to the announcements of the regulations. Overall, the initial imposition of the DTI restrictions (i.e., the first event) adversely affects those banks that possess a relatively large number of mortgage loans in their asset portfolio. By contrast, banks that hold a small number of mortgage loans appear to benefit from the risk‐reducing effect of the DTI regulation. Subsequently, the reinforcement of the LTV and DTI rules (i.e., the second event) has negative impacts on the banks with large mortgage loans. The degree of this adverse effect is greater in the second event than in the first event (i.e., the DTI restrictions). The reinforced regulations also unfavorably affect the savings banks with large mortgage loans but to a lesser degree compared with their counterparts in the banks. Meanwhile, the reinforcement of the financial regulations has negligible impacts on the banks and the savings banks with smaller mortgage loans.     

Demography and the demand for housing A reinterpretation of the Mankiw-Weil demand variable

This paper argues that the Mankiw-Weil forecast of a 47% decline in house prices over the period to 2007 is based on a serious misinterpretation of their demand variable. In a time-series context this variable, which comes from a cross-section regression of house values against the age of occupants, is a measure of the adult population, not the demand for housing services or the stock of houses. Econometric work suggests that in addition to adult population, real income, relative prices and real interest rates are important factors determining the aggregate demand for housing. To be credible, forecasts of house prices need to integrate information on demand with information on cost factors and the supply of new houses.     

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.     

住房反向抵押贷款与传统抵押贷款的对比分析

住房反向抵押贷款本质是以房屋融通资金,并以此为核心拉动养老、保险、房地产等多项社会活动.将反向抵押贷款和传统的抵押贷款对比分析可以更好的理解两种模式的特点和运作.用同一性分析和差异性分析对两种抵押贷款在基本属性和运作上的进行探讨.而组合性分析则是对两种抵押贷款在计算和操作上的分析.     

Do house price developments spillover across euro area countries? Evidence from a global VAR

This paper empirically assesses the prospects for house price spillovers in the euro area, where co-movement in house prices across countries may be particularly relevant given a general trend with monetary union toward increasing linkages in trade, financial markets, and general economic conditions. A global VAR is estimated for three housing demand variables (real house prices, real per capita income, and the cost of borrowing, captured by a real long-term interest rate) on the basis of quarterly data for 7 euro area countries (Belgium, Germany, Ireland, Spain, France, Italy and the Netherlands), which together comprise nearly 90% of euro area GDP, over the period 1971–2009. The results suggest limited house price spillovers in the euro area, albeit with evidence of some overshooting in the first year after the shock, followed by a long run aggregate euro area impact of country-specific changes in real house prices related in part to the country’s economic weight. This contrasts with the impacts of a shock to domestic long-term interest rates, causing a permanent shift in house prices after 2–3 years. Underlying this aggregate development are rather heterogeneous house price spillovers at the country level, with a strong importance for weights – either economic or geographic – in governing their general magnitude. More generally, the impact of financing costs on house prices appears to have grown though time.     

Role of credit and monetary policy in determining asset prices: Evidence from emerging market economies

We examine the relative dominance of credit and monetary policy shocks in influencing asset prices in emerging markets. Estimates from panel VAR models for 22 EMEs provide evidence of a significant impact of bank credit on house prices in contrast to trivial impact on stock prices, possibly due to prudential regulations on banks’ exposure to stock markets. Contractionary monetary policy triggers sizeable and persistent decline in stock than housing prices as higher interest rates may render the funding of leverage costlier. Global shocks play an important role in explaining fluctuations in domestic stock prices rather than house prices since the latter class of asset is largely non-tradable across countries.     

Some Truths about Ostriches: Who Doesn't Prepay Their Mortgages and Why They Don't

Prepayment estimation is essential in forecasting expected mortgage cash flow patterns. Accordingly, mortgage and mortgage-backed security prices are highly dependent on prepayment assumptions. Yet borrower prepayment behavior appears to be highly irrational, in the sense that many borrowers prepay their mortgages when it is not optimal to do so and fail to prepay their mortgages when the prepayment option is substantially in the money. In this paper, we explore the latter phenomenon, using a large data set of loans originated during the relatively high-rate 1980s that have failed to prepay by year-end 1996. As a control group, we examine similar loans that did prepay during the refinancing boom of 1993. By coupling Case–Shiller house price index information at the zip-code level, we can analyze the effect of broader housing market trends, especially housing appreciation, on borrower prepayment behavior. Although housing prices did decline significantly during the late 1980s and early 1990s in many areas of the United States, we find evidence that only about 25% of non-refinancing households might have been constrained by declining collateral values. Household demographic characteristics may provide some further explanation for this apparently non-optimizing behavior; however, we do not have a complete explanation.     

Canada's Housing Bubble Story: Mortgage Securitization,the State,and the Global Financial Crisis

Canada's experience during and after the financial crisis appears to distinguish it from its international peers. Canadian real estate sales and values experienced record increases since the global financial crisis emerged in 2008, rather than declines, and Canada did not witness any bank failures. The dominant trope concerning Canada's financial and housing markets is that they are sound, prudent, appropriately regulated and ‘boring but effective’. It is widely assumed that Canadian banks did not need, nor receive, a ‘bailout’, that mortgage lending standards remained high, and that the securitization of mortgages was not widespread. The truth, however, does not accord with this mainstream view. In fact, the Canadian financial and housing markets reveal marked similarities with their international peers. Canada's banks needed, and received, a substantial ‘bailout’, while federal policies before and after the financial crisis resulted in the massive growth of mortgage securitization and record household indebtedness. This article documents the growth of Canada's housing bubble, the history of mortgage securitization, and of government policies implemented before and after the crisis. Instead of making the Canadian financial and housing sectors more resilient and sustainable, the outcomes of state responses are best understood as regressively redistributive.     

Measuring housing affordability: Looking beyond the median

We draw a distinction between the concepts of purchase affordability (whether a household is able to borrow enough funds to purchase a house) and repayment affordability (the burden imposed on a household of repaying the mortgage). We operationalize this distinction in the context of a new methodology for constructing affordability measures that draws on the value-at-risk concept and takes account of the whole distribution of household income and house prices rather than just the median. Empirically we find that the distinction between purchase and repayment affordability can be pronounced. In the Sydney prime mortgage market over the period 1996–2006, repayment affordability deteriorated very significantly while purchase affordability remained quite stable. This difference can be attributed to the loosening of credit constraints in the mortgage market which it seems has carried through primarily into higher house prices rather than an improvement in purchase affordability. We also show how median house-price-to-income ratio measures of affordability can be extended to take account of the whole distribution of income and house prices, and how as a result of differential skewness in the house price and income distributions the housing affordability problem may be significantly worse for lower income households than suggested by standard median measures.     

Supply constraints and housing market dynamics

Although the volatility of house prices is often ascribed to demand-side factors, constraints on housing supply have important and little-studied implications for housing dynamics. I illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply. I then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship. I find that supply constraints increase volatility through two channels: First, regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin. Second, geographic limitations on the area available for building houses, such as steep slopes and water bodies, lead to less investment on average relative to the size of the existing housing stock, leaving less scope for the supply response to attenuate the effects of a demand shock. My estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks, which in turn amplifies house price volatility.     

Disequilibrium models of single family housing prices and transactions: The case of Chicago, 1972–1976

This paper reports a first application of Fair-Jaffee type short-side models of disequilibrium to the intraurban single family housing market in which the housing stock is divided into distinct geographic community areas. Data on single family dwelling transactions and prices in the city of Chicago between 1972–1976 is used to estimate four versions of the Fair-Jaffee type model. The approach allows the simultaneous estimation of the price elasticity of the demand for and offer of existing single family dwellings. The demand elasticity estimate of about −0.5 agrees with other estimates in the literature obtained from equilibrium models. The price elasticity of offer has not been previously estimated for single family dwellings. It is found to be around 2.1. Elasticities are also computed with respect to the mortgage interest rate and the intensity of transactions in the dwelling's community area. The disequilibrium models appear substantially superior to equilibrium specifications. Simulations with the estimated models predict that, in the absence of external shocks, transaction prices and quantities stabilize within 2 years.     

Subprime lending and the housing bubble: Tail wags dog?

The cause of the “housing bubble” associated with the sharp rise and then drop in home prices over the period 1998–2008 has been the focus of significant policy and research attention. The dramatic increase in subprime lending during this period has been broadly blamed for these market dynamics. In this paper we empirically investigate the validity of this hypothesis vs. several other alternative explanations. A model of house price dynamics over the period 1998–2006 is specified and estimated using a cross-sectional time-series data base across 20 metropolitan areas over the period 1998–2006. Results suggest that prior to early 2004, economic fundamentals provide the primary explanation for house price dynamics. Subprime credit activity does not seem to have had much impact on subsequent house price returns at any time during the observation period, although there is strong evidence of a price-boosting effect by investor loans. However, we do find strong evidence that a credit regime shift took place in late 2003, as the GSE’s were displaced in the market by private issuers of new mortgage products. Market fundamentals became insignificant in affecting house price returns, and the price-momentum conditions characteristic of a “bubble” were created. Thus, rather than causing the run-up in house prices, the subprime market may well have been a joint product, along with house price increases, (i.e., the “tail”) of the changing institutional, political, and regulatory environment characteristic of the period after late 2003 (the “dog”).     

Spatial Lock-in: Do Falling House Prices Constrain Residential Mobility?

Falling house prices have caused numerous homeowners to suffer capital losses. Those with little home equity may be prevented from moving because of imperfections in housing finance markets: the proceeds from the sale of their home may be insufficient to repay their mortgage and provide a down payment on a new home. A data set of mortgages is used to examine the magnitude of these constraints. Estimates show that average mobility would have been 24% higher after 3 years had house prices not declined, and after 4 years, it would have been 33% higher. Among those with high initial loan-to-value ratios, the differences are even greater.     

The price responsiveness of housing supply in OECD countries

The responsiveness of housing supply to changes in prices bears important implications for the evolution of housing prices and the speed of adjustment of housing markets. Based on a stock-flow model of the housing market estimated within an error correction framework, this paper estimates the long-run price elasticity of new housing supply in 21 OECD countries. Estimates suggest that the responsiveness of housing supply to price changes varies substantially across countries. It is relatively more flexible in North America and some Nordic countries, while it is more rigid in continental European countries and in the United Kingdom. The responsiveness of housing supply depends not only on national geographical and urban characteristics but also on policies, such as land use and planning regulations.     

Why Do Mortgage Markets Matter?

1999 saw the return of large scale mortgage equity - ie mortgage borrowing to finance consumption rather than house purchase - for the first time for a decade. Recent developments of the OEF macroeconometric model of the UK economy have focused on the determination of mortgage lending, looking in particular at the impact of downpayment constraints - ie the deposit borrowers have to put down when they buy a house. In this article, Geoffrey Meen uses this model to analyse the effects of mortgages on: (i) the cycle in the UK housing market at a national level; (ii) regional house price differentials; and (iii) aggregate savings and consumer behaviour.     

Macroeconomic implications of mortgage loan requirements: an agent-based approach

It is a well-known fact that the housing market, with its associated mortgage securities, plays a crucial role in modern economies. The recent crisis of 2007, triggered by the U.S. real estate bubble, confirms this key role and suggests the importance of regulating mortgage lending. This paper investigates these issues by designing a housing market with a linked mortgage lending instrument in the Eurace agent-based model. Our results show that the presence of a housing market in the model has relevant macroeconomic implications, driven mainly by the additional amount of endogenous money injected into the economy by new mortgages. This additional money generally helps to support and stabilize aggregated demand, thus improving the main economic indicators. However, if the regulation of mortgage lending is too lax, involving an increase in the debt-service-to-income ratio (DSTI), then the additional supply of mortgages no longer enhances macroeconomic performance, and the stability of the economic system is undermined. Based on a number of recent discussions, a regulation of stock control that targets households’ net wealth (a stock), rather than income (a flow) is designed and analyzed. The results show that regulation of stock control can be combined effectively with DSTI to increase the stability of the housing market and the economy as a whole. Interestingly, the regulation based on stock control also directly affects mortgage distribution among households, avoiding excessive concentration. From a policy perspective, our results suggest that the use of a mild flow control regulation, coupled with a stricter stock control measure, fosters sustainable growth and eases first-time buyers access to the housing market, encouraging homeownership.

     

House Prices, Housing Investment and Demography Forecasts from the LBS/Abbey National Model of the UK Housing Market

A new housing sector has been incorporated into the London Business School model. This article outlines the new housing model, summarizes the research which has gone into its construction, and presents a forecast of the UK housing market. Using the new housing model, we forecast a moderate recovery in the housing market in the later part of 1991 and 1992. This recovery is however short-lived and does not result in such high rates of house price increase as previous house price booms (Chart 1).
Cuts in interest rates following entry to the exchange rate mechanism of the EMS prompt a recovery in house prices from the middle of 1991. House price inflation then peaks with an increase in average UK house prices in 1992 of 11 per cent over the previous year. Increases in real personal disposable income are modest, by the standards of the 1980s, and for this reason the recovery does not develop the momentum of previous house price booms. House price inflation moderates again in 1993 falling back to around 7 per cent. Housing starts and housing investment recover only slightly from their present depressed levels.
the recovery in house prices is weaker than that foreseen in our April Forecast Release. This is because real personal disposable income is now forecast to grow more slowly during 1991. Sterling's membership of the ERM is followed by a fall in interest rates, but it is the timing of interest rate cuts rather than their magnitude which differs from the earlier forecast. The changed profile of interest rates has altered the house price forecast only marginally.