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Working Paper
Innovations in mortgage markets and increased spending on housing
Over the past several decades, innovations in the mortgage market have benefited consumers through a variety of channels. Innovations include the lowering of down payment requirements, increased flexibility in repayment schedules, and the reduction of costs associated with extracting equity from homes. To ascertain the ways in which these innovations would alter spending on housing, we develop a model of the home buying and mortgage choice decision that produces a number of testable implications. For instance, the lowering of down payment requirements should result in homeownership rates ...
Journal Article
Commercial real estate and low interest rates
Commercial real estate construction faltered during the 2007 recession and has improved only slowly during the recovery. However, low interest rates have led to higher property valuations and are clearly benefiting the sector. The recovery of commercial property prices has been notable. Some measures suggest that, in some segments of the market, prices are close to their pre-recession highs. Valuation measures do not suggest that current prices are excessive.
Journal Article
Real estate liquidity
Residential real estate markets often go through "hot" and "cold" periods. A hot market is one where prices are rising, liquidity is good in that average selling times are short, and the volume of transactions is higher than the norm. Cold markets have just the opposite characteristics - prices are falling, liquidity is poor, and volume is low. In this paper I show how liquidity depends on the value of the housing service flow, which in turn reflects the aggregate state of the economy. I use data from the San Francisco Bay Area to investigate the relationship between marketing times ...
Journal Article
The slowdown in existing home sales
Sales of existing homes slowed noticeably over the second half of 2013, reflecting a more drawn-out recovery than expected for housing markets. A main reason for the slowdown is higher mortgage rates that have made financing more costly nationwide. Sales appear to be slowing even more in distressed markets, where real estate investors had bought up single-family homes to convert into rental properties following the housing bust. Evidence suggests that investors may be retreating from these markets as housing valuations rise.
Journal Article
The separation of banking and commerce
Journal Article
Mortgage innovation and consumer choice
As 2006 draws to a close, one economic development that stands out over the year is the slowdown in the housing sector. In particular, the slowdown raises concerns about the perceived shift households have made toward "alternative" mortgage products, which may leave them more exposed to negative effects from higher interest rates and falling house prices. In this Economic Letter, I take a somewhat longer view and put alternative mortgages in the context of the history of innovation in the U.S. mortgage market. I then examine the ways in which this innovation may be affecting the housing ...
Working Paper
Asset price declines and real estate market illiquidity: evidence from Japanese land values
We develop an overlapping generations model of the real estate market in which search frictions and a debt overhang combine to generate price persistence and illiquidity. Illiquidity stems from heterogeneity in agent real estate valuations. The variance of agent valuations determines how quickly prices adjust following a shock to fundamentals. We examine the predictions of the model by studying price depreciation in Japanese land values subsequent to the 1990 stock market crash. Commercial land values fell much more quickly than residential land values. As we would posit that the variance of ...
Working Paper
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 ...
Working Paper
Mortgages as recursive contracts
Mortgages are one-sided contracts under which the borrower may terminate the contract at any time, while the lender must commit to honoring the terms of the contract throughout its life. There are two aspects to this feature of the contract that are modeled in this paper. The first is that the borrower may choose between buying a house or renting. Given these alternatives, a contract between a household and a lender makes home ownership feasible, and provides insurance to the household against fluctuating rental payments. The second is that once in a contract, the household may terminate the ...
Journal Article
Mortgage refinancing