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Discussion Paper
Gulf War II Veterans Home Buyers Tax Credit
Over the next few years, large volumes of homes are likely to flow from foreclosure onto lenders? balance sheets as ?real estate owned,? or REO. Without a significant boost to demand, this large volume of ?distressed? real estate could potentially put substantial downward pressure on home prices. Accordingly, new policy initiatives are needed to increase the rate at which properties that flow into REO get reabsorbed back into use as renter- or owner-occupied units. In this post, I make the case for a tax credit for Gulf War II veterans? home purchases.
Discussion Paper
Compensation Growth and Slack in the Current Economic Environment
Following a significant slowing during the recent recession, growth in various labor compensation measures has stabilized during the past two to three years. This stabilization is puzzling because it’s widely held that a significant amount of slack remains in the economy. Accordingly, this large amount of slack should result in a further slowing in compensation (wage) growth. In this post, we show that there’s a very mild trade-off between compensation growth and resource slack, even though slack is sizable. Consequently, the observation that there’s slow but steady growth in labor ...
Report
Juvenile delinquent mortgages: bad credit or bad economy?
We study early default, defined as serious delinquency or foreclosure in the first year, among nonprime mortgages from the 2001 to 2007 vintages. After documenting a dramatic rise in such defaults and discussing their correlates, we examine two primary explanations: changes in underwriting standards that took place over this period and changes in the economic environment. We find that while credit standards were important in determining the probability of an early default, changes in the economy after 2004 - especially a sharp reversal in house price appreciation - were the more critical ...
Report
Effects of household creditworthiness on mortgage refinancings
Using a unique loan level data set that links individual household credit ratings with property and loan characteristics, we test the extent to which homeowners' equity and credit ratings affect the likelihood that mortgage loans will be refinanced as interest rates fall. The logit model estimates strongly support the importance of both the equity and credit ratings affect the likelihood that mortgage loans will be refinanced as interest rates fall. The logit model estimates strongly support the importance of both the equity and credit variable. These results are interesting both from the ...
Journal Article
Core CPI: excluding food, energy ... and used cars?
Although used car prices represent only a small portion of the consumer price index, their extreme volatility has had a major impact on the measured inflation rate. To explain this relationship, the authors describe how used cars are treated in the CPI and explore what might cause the wide swings in used car prices.
Journal Article
The homeownership gap
Recent years have seen a sharp rise in the number of negative equity homeowners--those who owe more on their mortgages than their houses are worth. These homeowners are included in the official homeownership rate computed by the Census Bureau, but the savings they must amass to retain their home or purchase a new home are daunting. Recognizing that these homeowners are likely to convert to renters over time, the authors of this analysis calculate an "effective" rate of homeownership that excludes negative equity households. They argue that the effective rate--5.6 percentage points below ...
Discussion Paper
The Homeownership Gap Is Finally Closing
The homeownership rate peaked at 69 percent in late 2004. By the summer of 2016, it had dropped below 63 percent—exactly where it was when the government started reporting these data back in 1965. The housing bust played a central role in this decline. We capture this effect through what we call the homeownership gap—the difference between the official homeownership rate and the “effective” rate where only homeowners with positive equity in their house are counted. The effective rate takes into account that a borrower does not in an economic sense own the house if the mortgage debt is ...
Journal Article
The historical and recent behavior of goods and services inflation
Since the late 1990s, the combination of relatively high services inflation and declining goods prices has produced a record-level gap in these inflation rates. Some commentators argue that if the gap between services and goods inflation continues to expand in this manner, the outcome will be either faster overall inflation or deflation. This article examines the relationship between these divergent inflation rates from 1967 to 2002. The authors find that while the level of each inflation rate is subject to permanent shifts, the gap between services inflation and goods inflation over time ...
Report
Implied mortgage refinancing thresholds
The optimal prepayment model asserts that rational homeowners would refinance if they can reduce the current value of their liabilities by an amount greater than the refinancing threshold, defined as the cost of carrying the transaction plus the time value of the embedded call option. To compute the notional value of the refinancing threshold, researchs have traditionally relied on a discrete option-pricing model. Using a unique loan level dataset that links homeowner attributes with property and loan characteristics, this study proposes an alternative approach of estimating the implied value ...
Journal Article
Are home prices the next "bubble"?
The strong rise in home prices since the mid-1990s has raised concerns over a possible bubble in the housing market and the effect of a sharp price decline on the U.S. economy. This article assesses two measures frequently cited to support a bubble-the rising price-to-income ratio and the declining rent-to-price ratio-and finds the measures to be flawed and the conclusions drawn from them unpersuasive. In particular, the measures do not fully account for the effects of declining nominal mortgage interest rates and fail to use appropriate home price indexes. The authors also estimate a ...