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Working Paper
House Price Growth Interdependencies and Comovement
Cohen, Jeffrey P.; Soques, Daniel; Coughlin, Cletus C. (2021-01-11)
This paper examines house price comovement across U.S. metropolitan areas (MSAs). We develop a Markov-switching framework that includes a spatial similarity element based on distances between MSAs. Our approach allows for house price comovements that occur due to similar timing of downturns across groups or clusters of MSAs. The inclusion of the spatial element improves the model fit compared to a standard endogenous clustering model. We find seven clusters of MSAs, where each cluster experiences idiosyncratic house price downturns, plus one distinct national house price cycle. Notably, only ...
Working Papers , Paper 2019-028

Working Paper
House Price Growth Interdependencies and Comovement
Cohen, Jeffrey P.; Soques, Daniel; Coughlin, Cletus C. (2019-09-25)
This paper examines house price diffusion across metropolitan areas in the United States. We develop a generalization of the Hamilton and Owyang (2012) Markov-switching model, where we incorporate direct regional spillovers using a spatial weighting matrix. The Markov-switching framework allows consideration for house price movements that occur due to similar timing of downturns across MSAs. The inclusion of the spatial weighting matrix improves fit compared to a standard endogenous clustering model. We find seven clusters of MSAs that experience idiosyncratic recessions plus one distinct ...
Working Papers , Paper 2019-28

Report
Financial frictions, real estate collateral, and small firm activity in Europe
Blickle, Kristian S.; Banerjee, Ryan N. (2018-10-01)
We observe significant heterogeneity in the correlation between changes in house prices and the growth of small firms across certain countries in Europe. We find that, overall, the correlation is far greater in Southern Europe than in Northern Europe. Using a simple model, we show that this heterogeneity may relate to financial frictions in a country. We confirm the model?s propositions in a number of empirical analyses for the following countries in Northern and Southern Europe: the United Kingdom, Norway, France, Italy, Spain, and Portugal. Small firms in countries with higher financial ...
Staff Reports , Paper 868

Working Paper
Creative Destruction and the Reallocation of Capital in Rural and Urban Areas
Brown, Jason; Lambert, Dayton (2024-10-22)
We test the implications of Schumpeter’s theory of creative destruction on food manufacturer births and deaths using a dynamic, unobserved effects count model with correlated random effects. We find evidence of a creative destruction process via the interaction of previous firm birth and death, which is correlated with higher rates of contemporaneous firm birth and death in a given location. Results support Marshall’s notion of “something is in the air,” as evidenced by the strong correlation between sources of unobserved heterogeneity in the birth and death processes. Consistent with ...
Research Working Paper , Paper RWP 24-11

Working Paper
Imperfect Substitutability in Real Estate Markets and the Effect of Housing Demand on the Macroeconomy
Davis, J. Scott; Sapci, Ayse; Huang, Kevin X. D. (2020-09-28)
Changes in housing demand can have a macroeconomic effect through the collateral channel, where the change in residential real estate prices is associated with a change in commercial real estate prices, affecting firm collateral and thus firm investment. We argue that this channel is weaker when residential and commercial real estate are poor substitutes. Using cross-state heterogeneity in the strength of zoning regulations as a proxy for heterogeneity in the substitutability of residential and commercial real estate, we first show with firm level data that the strength of local zoning ...
Globalization Institute Working Papers , Paper 401

Working Paper
Financing Affordable and Sustainable Homeownership with Fixed-COFI Mortgages
Passmore, Wayne; von Hafften, Alexander H. (2018-02-05)
The 30-year fixed-rate fully amortizing mortgage (or ?traditional fixed-rate mortgage?) was a substantial innovation when first developed during the Great Depression. However, it has three major flaws. First, because homeowner equity accumulates slowly during the first decade, homeowners are essentially renting their homes from lenders. With this sluggish equity accumulation, many lenders require large down payments. Second, in each monthly mortgage payment, homeowners substantially compensate capital markets investors for the ability to prepay. The homeowners might have better uses for this ...
Finance and Economics Discussion Series , Paper 2018-009

Working Paper
U.S. Housing as a Global Safe Asset: Evidence from China Shocks
Barcelona, William; Wong, Anna; Converse, Nathan L. (2021-11-12)
This paper demonstrates that the measured stock of China's holding of U.S. assets could be much higher than indicated by the U.S. net international investment position data due to unrecorded historical Chinese inflows into an increasingly popular global safe haven asset: U.S. residential real estate. We first use aggregate capital flows data to show that the increase in unrecorded capital inflows in the U.S. balance of payment accounts over the past decade is mainly linked to inflows from China into U.S. housing markets. Then, using a unique web traffic dataset that provides a direct measure ...
International Finance Discussion Papers , Paper 1332

Working Paper
The Role of Government and Private Institutions in Credit Cycles in the U.S. Mortgage Market
Schoar, Antoinette; McCartney, W. Ben; Adelino, Manuel (2020-10-07)
The distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages has been remarkably stable in the U.S. over the last 25 years. But the source of high-CLTV loans changed during the housing boom of the 2000s, with private securitization replacing FHA and VA loans directly guaranteed by the government. This substitution holds within ZIP codes, properties, and borrower types. Furthermore, the two groups exhibit similar delinquency rates. These findings suggest credit expanded predominantly through the increase in asset values rather than a relaxation of CLTV constraints, which ...
Working Papers , Paper 20-40

Working Paper
Bubbling Up? What Consumer Expectations Reveal About U.S. Housing Market Exuberance
Martínez García, Enrique; Pavlidis, Efthymios (2025-05-21)
We investigate the presence of speculative bubbles in the U.S. housing market after the global financial crisis. Unlike standard approaches that rely on observed economic fundamentals, our method leverages subjective price expectations from the University of Michigan Survey of Consumers to test for exuberance without imposing a specific model of intrinsic housing values. By applying recursive least-squares and quantile-based unit root tests to cumulative expectational errors, we uncover novel evidence of speculative dynamics at the aggregate level and across broad demographic and ...
Working Papers , Paper 2521

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