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Journal Article
Subprime May Not Have Caused the 2000s Housing Crisis: Evidence from Cleveland, Ohio
During the 2000s housing bust, Cleveland’s Slavic Village was dubbed “ground zero of the foreclosure crisis” by the national media. Despite this, during the preceding housing boom Cleveland had stable house price growth and relatively low mortgage debt growth, a stark contrast to circumstances in areas such as California that had exceptionally high house price and mortgage debt growth. What explains the relatively minor housing boom and perceived sharp downturn in Cleveland? In this Commentary I show that while subprime debt was a prominent source of debt in Cleveland and especially in ...
Working Paper
Disentangling rent index differences: data, methods, and scope
Rent measurement determines 32 percent of the CPI. Accurate rent measurement is therefore essential for accurate inflation measurement, but the CPI rent index often differs from alternative measures of rent inflation. Using repeat-rent inflation measures created from CPI microdata, we show that this discrepancy is largely explained by differences in rent growth for new tenants relative to all tenants. New-tenant rent inflation provides information about future all-tenant rent inflation, but the use of new-tenant rents is contraindicated in a cost-of-living index such as the CPI. Nevertheless, ...
Working Paper
Technological innovation in mortgage underwriting and the growth in credit, 1985–2015
The application of information technology to finance, or ?fintech,? is expected to revolutionize many aspects of borrowing and lending in the future, but technology has been reshaping consumer and mortgage lending for many years. During the 1990s, computerization allowed mortgage lenders to reduce loan-processing times and largely replace human-based assessments of credit risk with default predictions generated by sophisticated empirical models. Debt-to-income ratios at origination add little to the predictive power of these models, so the new automated underwriting systems allowed higher ...
Working Paper
Loan Modifications and the Commercial Real Estate Market
Banks modify more CRE loans than CMBS, contributing to better loan performance when property incomes decline. However, banks have higher delinquency rates for less-stressed loans, consistent with modification policies encouraging strategic default. Motivated by these facts, we develop a tradeoff theory model in which lenders vary in their modification technologies. Modification frictions discourage strategic renegotiation, enabling CMBS to offer higher LTV loans and attract borrowers seeking higher leverage. The model produces cross-lender differences in LTVs and spreads consistent with the ...
Working Paper
On Commercial Construction Activity's Long and Variable Lags
We use microdata on the phases of commercial construction projects to document three facts regarding time-to-plan lags: (1) plan times are long--about 1.5 years on average--and highly variable, (2) roughly one-third of projects are abandoned in planning, (3) property price appreciation reduces the likelihood of abandonment. We construct a model with endogenous planning starts and abandonment that matches these facts. Endogenous abandonment makes short-term building supply more elastic, as price shocks immediately affect the exercise of construction options rather than just planning starts. ...
Journal Article
Increasing the (Female) Labor Supply
In the United States, women’s labor force participation has been persistently below that of men’s for decades. This Commentary describes three contributors to this divide—the way in which the United States taxes opposite-sex married couples, how Social Security benefits are allocated, and the cost of childcare—and reviews the economic literature quantifying their impact on the labor force participation of women.
Working Paper
House Prices and Rents in the 21st Century
We study the joint evolution of prices and rents of residential property. After constructing rent and price indices for renter- and owner-occupied properties, we decompose the change in the price of occupant-owned property into (1) changes in rent, (2) changes in the relative prices of investor- and occupant-owned properties, and (3) changes in the price-rent ratio. Via a simple model, we link our decomposition to different sources of variation in house prices. We argue that while the 2000s boom was plausibly driven by exuberant expectations, the boom of the 2020s more likely resulted from a ...
Discussion Paper
Evaluating the Benefits of a Streamlined Refinance Program
Mortgage borrowers who have experienced employment disruptions as a result of the COVID-19 pandemic are unable to refinance their loans to take advantage of historically low market rates. In this article, we analyze the effects of a streamlined refinance ("refi") program for government-insured loans that would allow borrowers to refinance without needing to document employment or income. In addition, we consider a cash-out component that would allow borrowers to extract some of the substantial amount of housing equity that many have accumulated in recent years.
Working Paper
Cross-sectional patterns of mortgage debt during the housing boom: evidence and implications
The reallocation of mortgage debt to low-income or marginally qualified borrowers plays a central role in many explanations of the early 2000s housing boom. We show that such a reallocation never occurred, as the distribution of mortgage debt with respect to income changed little even as the aggregate stock of debt grew rapidly. Moreover, because mortgage debt varies positively with income in the cross section, equal percentage increases in debt among high- and low-income borrowers meant that wealthy borrowers accounted for most new debt in dollar terms. Previous research stressing the ...