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Housing supply and foreclosures
We explore the role of foreclosure inventories in a model of housing supply. The foreclosure variable is necessary to account for the steep and sustained drop in new construction activity following the U.S. housing market bust beginning in 2006. There is modest evidence that local banking conditions play a role in determining housing starts. Even with state-level foreclosures and banking variables in the model, there is a sizeable post-2006 residual common to all states. We argue that, in addition to observable macro and local factors, housing starts in the Great Recession have been weighed ...
Why are housing inventories low?
Inventories of homes for sale have been slow to bounce back since the 2007?09 recession, despite steady house price appreciation since January 2012. One probable reason why many homeowners are not putting their homes on the market is that their properties may still be worth less than the value of their mortgages, which would leave them owing additional money after a sale. In other cases, homeowners may simply be hoping that house prices will continue to rise, allowing them to recover lost equity.
When will residential construction rebound?
Over the past several years, U.S. housing starts have dropped to around 400,000 units at an annualized rate, the lowest level in decades. A simple model of housing supply that takes into account residential mortgage foreclosures suggests that housing starts will return to their long-run average by about 2014 if house prices first stabilize and then begin appreciating, and the bloated inventory of foreclosed properties declines.
Mortgage prepayments and changing underwriting standards
Despite historically low mortgage interest rates, borrower prepayments have been lower than expected over the past year. For example, a model based on prepayment data from 2000 through the beginning of 2009 predicts a prepayment rate for the first quarter of 2010 roughly twice as high as the observed rate. It can be conjectured that current low prepayment rates reflect the influence of factors specific to the housing bust, including a significant tightening of lending terms for certain borrowers, weak housing demand, and high foreclosure rates.
Credit access following a mortgage default
Borrowers who default on mortgages return to the mortgage market at extremely slow rates. Only about 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default. Borrowers who terminate mortgages for reasons other than default return to the market about two-and-a-half times faster than those who default. Renewed access to credit takes even longer for subprime borrowers with a serious delinquency on their record.