Explaining the Boom-bust Cycle in the US Housing Market PDF Download

Author: Paolo Gelain
Publisher:
ISBN: 9788275538732
Category :
Languages : en
Pages : 50

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Author: Paolo Gelain
Publisher:
ISBN:
Category :
Languages : en
Pages : 37

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Book Description
We use a simple quantitative asset pricing model to "reverse-engineer" the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage contract (one-period versus long-term). We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data. Counterfactual simulations show that shifting lending standards (as measured by a loan-to-equity limit) were an important driver of the episode while movements in the mortgage interest rate were not. All models deliver rapid consumption growth during the boom, negative consumption growth during the Great Recession, and sluggish consumption growth during the recovery when households are deleveraging.

Author: Thomas Sowell
Publisher: Basic Books (AZ)
ISBN: 0465018807
Category : Business & Economics
Languages : en
Pages : 194

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Explains how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The "creative" financing of home mortgages and "creative" marketing of financial securities based on these mortgages to countries around the world, are part of the story of how a financial house of cards was built up--and then collapsed.

Author: Calvin Schnure
Publisher: INTERNATIONAL MONETARY FUND
ISBN: 9781451862195
Category : Business cycles
Languages : en
Pages : 27

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Why are housing markets so prone to boom-bust cycles? The mortgage market structure prior to the Savings and Loan crisis contributed to the volatility in real housing activity which, in turn, amplified the volatility in housing prices. The subsequent development of a national, market-based system of securitized mortgage finance has damped this boom-bust cycle. We test whether deviations of actual housing prices from values forecast by a model based on economic fundamentals have responded to the change in financial structure, and find that pricing errors have fallen significantly since the mid-1980s. Tests of the relative importance of the change in financial market structure versus the reduction of inflation over this period indicate a primary role for market structure in improving pricing efficiency.

Author: Todd M. Sinai
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 49

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This paper describes six stylized patterns among housing markets in the United States that potential explanations of the housing boom and bust should seek to explain. First, individual housing markets in the U.S. experienced considerable heterogeneity in the amplitudes of their cycles. Second, the areas with the biggest boom-bust cycles in the 2000s also had the largest boom-busts in the 1980s and 1990s, with a few telling exceptions. Third, the timing of the cycles differed across housing markets. Fourth, the largest booms and busts, and their timing, seem to be clustered geographically. Fifth, the cross sectional variance of annual house price changes rises in booms and declines in busts. Finally, these stylized facts are robust to controlling for housing demand fundamentals - namely, rents, incomes, or employment - although changes in fundamentals are correlated with changes in prices -- National Bureau of Economic Research web site.

Author: Fred Harrison
Publisher: Shepheard-Walwyn
ISBN: 0856833126
Category : Business & Economics
Languages : en
Pages : 202

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Not employment or inflation as argued during the Great Depression and years of Reaganomics, the mechanism that drives the business cycle is proven to be the housing and property market in this analysis of the instability of financial markets. The consequences of how neoclassical economics ignores the importance of land are presented in a discussion of the dot-com crash. Agricultural, industrial, and commercial property and the housing market are examined to suggest that policymakers must revise their treatment of land in economic decisions to avoid the next economic crash, predicted for 2010.

Author: Colin Caines
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Edward L. Glaeser
Publisher: University of Chicago Press
ISBN: 9780226030586
Category : Business & Economics
Languages : en
Pages : 0

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Conventional wisdom held that housing prices couldn’t fall. But the spectacular boom and bust of the housing market during the first decade of the twenty-first century and millions of foreclosed homeowners have made it clear that housing is no different from any other asset in its ability to climb and crash. Housing and the Financial Crisis looks at what happened to prices and construction both during and after the housing boom in different parts of the American housing market, accounting for why certain areas experienced less volatility than others. It then examines the causes of the boom and bust, including the availability of credit, the perceived risk reduction due to the securitization of mortgages, and the increase in lending from foreign sources. Finally, it examines a range of policies that might address some of the sources of recent instability.

Author: Eugene N. White
Publisher: University of Chicago Press
ISBN: 022609328X
Category : Business & Economics
Languages : en
Pages : 408

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Book Description
The central role of the housing market in the recent recession raised a series of questions about similar episodes throughout economic history. Were the underlying causes of housing and mortgage crises the same in earlier episodes? Has the onset and spread of crises changed over time? How have previous policy interventions either damaged or improved long-run market performance and stability? This volume begins to answer these questions, providing a much-needed context for understanding recent events by examining how historical housing and mortgage markets worked—and how they sometimes failed. Renowned economic historians Eugene N. White, Kenneth Snowden, and Price Fishback survey the foundational research on housing crises, comparing that of the 1930s to that of the early 2000s in order to authoritatively identify what contributed to each crisis. Later chapters explore notable historical experiences with mortgage securitization and the role that federal policy played in the surge in home ownership between 1940 and 1960. By providing a broad historical overview of housing and mortgage markets, the volume offers valuable new insights to inform future policy debates.

Author: Pascal Towbin
Publisher: International Monetary Fund
ISBN: 1513596233
Category : Business & Economics
Languages : en
Pages : 35

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Book Description
Between 1996 and 2006 the U.S. has experienced an unprecedented boom in house prices. As it has proven to be difficult to explain the large price increase by observable fundamentals, many observers have emphasized the role of speculation, i.e. expectations about future price developments. The argument is, however, often indirect: speculation is treated as a deviation from a benchmark. The present paper aims to identify house price expectation shocks directly. To that purpose, we estimate a VAR model for the U.S. and use sign restrictions to identify house price expectation, housing supply, housing demand, and mortgage rate shocks. House price expectation shocks are the most important driver of the boom and account for about 30 percent of the real house price increase. We also construct a model-based measure of exogenous changes in price expectations and show that this measure leads a survey-based measure of changes in house price expectations. Our main identification scheme leaves open whether expectation shifts are realistic or unrealistic. In extensions, we provide evidence that price expectation shifts during the boom were primarily unrealistic and were only marginally affected by realistic expectations about future fundamentals.