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Working Paper
Locked In: Rate Hikes, Housing Markets, and Mobility
Rising interest rates in 2022 introduced large moving costs for homeowners with low, fixed-rate mortgages. Using a novel dataset linking mortgage loans, consumer credit profiles, and property sales, we examine the effects of rate hikes on household mobility and the broader economic impacts of the resulting mortgage rate lock-in. As market rates rise relative to those on borrowers’ existing loans, likelihood of moving falls with the highest elasticity among borrowers just “in the money.” Our results suggest about 44% of the decline in moves among mortgage holders between 2021 and 2022 ...
Working Paper
The Impact of Labels on Real Asset Valuations
Expectations and sentiment of economic agents about financial prospects are both the drivers and the leading indicators of economic phenomena. This paper shows that neighborhood labels, frequently used in realtors’ property descriptions, have a causal impact on the demand for housing. Results indicate that appraised values, house prices and rents increased in minority neighborhoods upon removal of neighborhood labels. The underlying mechanism likely works through forming expectations about future growth in housing markets, as documented by the decrease in the rent-to-price ratio and lack of ...
Examining the Effects of COVID-19 on the Southeast Housing Market
To continue to monitor how the COVID-19 crisis is affecting housing in the Atlanta Fed's district, we conducted a Southeast Housing Market Poll from April 24 to May 1. Respondents included homebuilders and residential sales agents (referred to here as brokers).
Journal Article
Remote Work and Housing Demand
The COVID-19 pandemic reshaped the way households work. Nearly a third of employees still worked from home part time or full time as of August 2022. This has significantly increased housing demand and is a key factor explaining why U.S. house prices grew 24% between November 2019 and November 2021. Analysis shows that the shift to remote work may account for more than half of overall house price increases and similar increases in rents. This fundamental evolution in work-related housing demand may be important for future house prices.
Journal Article
Understanding the Eighth District’s Housing Market
Interest rate increases have cooled housing markets in the Eighth District, but trends in housing demand have led to tight residential real estate markets.
Newsletter
What Is Driving the Differences in Inflation Within the Midwest?
In this article, we explore differences in inflation dynamics across cities (and other areas) within the Midwest. We look independently at the impact of consumption patterns and price changes by expenditure categories, and find that the recent gaps in inflation across midwestern cities have existed largely because of disparities in price changes for housing and transportation, as well as differences in the consumption patterns (as captured by expenditure weights) for transportation and housing.
Update on Lot Availability and Construction Lending
"Location, location, location" is a truism associated with residential real estate. What we're hearing from our construction contacts could be another sort of truism: "Labor, lumber, lots." They are referring to the ongoing tight labor market in the construction trades, the skyrocketing price of lumber, and the difficulty of obtaining lots on which to build. While it's true that housing sector fundamentals—employment growth, household formation, tight inventory—continue to support an optimistic outlook, our industry contacts continue to report challenges regarding the supply chain. This ...
Working Paper
What are the Perceived Barriers to Homeownership for Young Adults?
As the U.S. emerges from the Great Recession, there is concern about slowing rates of new household formation and declining interest in homeownership, especially among younger households. Potential reasons that have been posited include tight mortgage credit and housing supply, changing preferences over tenure in the wake of the foreclosure crisis, and weak labor markets for young workers. In this paper, we examine how individual housing choices, and the stated motivations for these choices, reflect local housing affordability and individual financial circumstances, focusing particularly on ...
Report
The sensitivity of housing demand to financing conditions: evidence from a survey
The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a strategic survey in which respondents are asked for their willingness to pay (WTP) for a home comparable to their current one, under ...
Working Paper
A Theory of Housing Demand Shocks
Housing demand shocks in standard macroeconomic models are a primary source of house price fluctuations, but those models have difficulties in generating the observed large volatility of house prices relative to rents. We provide a microeconomic foundation for the reduced-form housing demand shocks with a tractable heterogenous-agent framework. In our model with heterogeneous beliefs, an expansion of credit supply raises housing demand of optimistic buyers and boosts house prices without affecting rents. A credit supply shock also leads to a positive correlation between house trading volumes ...