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Journal Article
After the refinancing boom: will consumers scale back their spending?
Concerns are rising that the recent surge in home equity withdrawal has left consumers in a weakened financial position that will, over time, prompt a retrenchment in spending. However, a look at household assets and liabilities suggests that consumers have used the withdrawn funds to restructure their balance sheets and reduce their debt service burden. As a result, households may be in a better position to spend in the years ahead.
Journal Article
A nation of spendthrifts? An analysis of trends in personal and gross saving
The steep drop in the U.S. personal saving rate over the last decade has fueled speculation that Americans are spending recklessly. But alternative measures of personal saving show that households are actually setting aside a larger share of their resources than the official figures suggest. In addition, government saving has risen markedly, leading to an increase in overall domestic saving that has helped finance a surge in U.S. investment.
Journal Article
Core CPI: excluding food, energy ... and used cars?
Although used car prices represent only a small portion of the consumer price index, their extreme volatility has had a major impact on the measured inflation rate. To explain this relationship, the authors describe how used cars are treated in the CPI and explore what might cause the wide swings in used car prices.
Journal Article
How does slack influence inflation?
Economists have long studied the relationship between resource utilization and inflation. Theory suggests that when firms use labor and capital very intensively, production costs tend to rise and firms have more scope to pass those cost increases along in the form of higher product prices. In contrast, when that level of intensity is relatively low?that is, when the economy is operating with slack?production costs tend to rise more slowly (or even fall) and firms have less scope for raising prices. Empirical evidence, however, has varied concerning the exact nature of the relationship between ...
Journal Article
The homeownership gap
Recent years have seen a sharp rise in the number of negative equity homeowners--those who owe more on their mortgages than their houses are worth. These homeowners are included in the official homeownership rate computed by the Census Bureau, but the savings they must amass to retain their home or purchase a new home are daunting. Recognizing that these homeowners are likely to convert to renters over time, the authors of this analysis calculate an "effective" rate of homeownership that excludes negative equity households. They argue that the effective rate--5.6 percentage points below ...
Journal Article
The parts are more than the whole: separating goods and services to predict core inflation
Economists have not been altogether successful in their efforts to forecast ?core? inflation?an inflation measure that typically excludes volatile food and energy prices. One possible explanation is that the models used to make these forecasts fail to distinguish the forces influencing price changes in core services from those affecting price changes in core goods. While core services inflation depends on long-run inflation expectations and the degree of slack in the labor market, core goods inflation depends on short-run inflation expectations and import prices. By using a composite model ...
Journal Article
The historical and recent behavior of goods and services inflation
Since the late 1990s, the combination of relatively high services inflation and declining goods prices has produced a record-level gap in these inflation rates. Some commentators argue that if the gap between services and goods inflation continues to expand in this manner, the outcome will be either faster overall inflation or deflation. This article examines the relationship between these divergent inflation rates from 1967 to 2002. The authors find that while the level of each inflation rate is subject to permanent shifts, the gap between services inflation and goods inflation over time ...
Journal Article
Credit, equity, and mortgage refinancings
Using a unique loan level data set that links individual household credit ratings with property and loan characteristics, the authors test the extent to which homeowners' credit ratings and equity affect the likelihood that mortgage loans will be refinanced as interest rates fall. Their logit model estimates strongly support the importance of both the credit and equity variables. Furthermore, the authors' results suggest that a change in the overall lending environment over the past decade has increased the probability that a homeowner will refinance.
Journal Article
Housing outcomes: an assessment of long-term trends
This paper was presented at the conference "Unequal incomes, unequal outcomes? Economic inequality and measures of well-being" as part of session 2, " Affordability of housing for young and poor families." The conference was held at the Federal Reserve Bank of New York on May 7, 1999. The authors examine trends in housing outcomes by income group. Orr and Peach indicate that there has been a substantial improvement in the physical adequacy of the housing stock over the past few decades, particularly for households in the lowest income quintile. Neighborhood quality for all income ...
Journal Article
Are home prices the next "bubble"?
The strong rise in home prices since the mid-1990s has raised concerns over a possible bubble in the housing market and the effect of a sharp price decline on the U.S. economy. This article assesses two measures frequently cited to support a bubble-the rising price-to-income ratio and the declining rent-to-price ratio-and finds the measures to be flawed and the conclusions drawn from them unpersuasive. In particular, the measures do not fully account for the effects of declining nominal mortgage interest rates and fail to use appropriate home price indexes. The authors also estimate a ...