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Working Paper
The rise in mortgage defaults
The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different ...
Working Paper
A model of real estate auctions versus negotiated sales
Real estate auctions have grown substantially in recent years, emergingas an alternative sales method for many institutions interested in sellinglarge amounts of property quickly. This paper develops a framework for comparing auctions to the more traditional negotiated sales. The model showsthat auctions will sell property at a discount because a quick sale results in a poorer "match" between house and buyer, on average, than could be obtained by waiting longer for a buyer. Furthermore, the model predicts that auction discounts should be larger in a down market with high vacancies, and in a ...
Working Paper
Housing price dynamics within a metropolitan area
This paper analyzes the pattern of house price appreciation in the Boston area from 1982 to 1994. The empirical results are consistent with the predictions of a standard urban model in which towns have a fixed set of amenities. The evidence suggests that changes in the cross-sectional pattern of house prices are related to differences in manufacturing employment, demographics, new construction, proximity to the downtown, and to aggregate school enrollments. These findings support the view that town amenities are not easily replicated or quickly adaptable to shifts in demand, even within a ...
Journal Article
Taxes, income distribution, and the real estate cycle: why all houses do not appreciate at the same rate
Changes in house prices are generally reported on an aggregate basis. This article suggests that within a metropolitan area, high-value and low-value homes appreciate at different rates. Overall, the authors results indicate that appreciation rates are more volatile for high-priced homes than for less expensive homes around the real estate cycle. ; The different rates of price appreciation are partly explained by changes in the user cost of owning a home. Cyclical factors also play a part. Furthermore, the author found that changes in the prices of lowervalue homes have a contemporaneous ...
Journal Article
Regional housing supply and credit constraints
The construction of new housing plays a critical role in the economy, yet it is understudied by researchers. Increases in housing starts raise construction employment, and recent home buyers often purchase other consumer durables, leading through the multiplier effect to increased employment. Construction is especially important to the business cycle, because changes in residential construction tend to lead recessions and recovery.> Despite its importance, empirical research on housing supply is surprisingly rare. This article presents a new empirical model of housing supply that reflects the ...
Journal Article
Chasing good schools in Massachusetts
Working Paper
Gifts, down payments, and housing affordability
Recent evidence shows that homeownership rates among young households have declined substantially since the mid 1980s. Although factors such as late household formation and the increasing user cost of housing are contributing factors, reduced affordability is also a concern. Aggregate data indicate that first-time buyers are relying more heavily on gifts from relatives and less on own savings in accumulating the down payment. ; This paper explores the role of gifts in helping first-time buyers purchase a home using data from two different sources: surveys of recent home buyers in 18 cities ...
Working Paper
Unifying empirical and theoretical models of housing supply.
Housing supply plays an important role in the volatility of macroeconomic cycles and the speed with which house prices respond to changes in demand, yet it is understudied in the current literature. In this paper we present and estimate a new model of the supply of residential construction that is consistent with the theoretical treatment of land development and urban growth. This model shows that new housing construction is best described as a function of changes in house prices and costs rather than as a function of the levels of those variables. Previous research that uses the price levels ...
Report
Assessing high house prices: bubbles, fundamentals, and misperceptions
We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in ...
Working Paper
Why do households without children support local public schools? linking house price capitalization to school spending
While residents receive similar benefits from many local public expenditures, only about one-third of all households have children in the public schools. In this paper the authors argue that capitalization of school spending into house prices can encourage residents to support spending on schools, even if the residents themselves will never have children in the schools. To examine this hypothesis, the authors take advantage of differences across communities in the extent of house price capitalization based on the availability of land or population density. They show that fiscal variables and ...