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  • 2005-2009  (3)
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  • 1
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    The Mortgage Market Meltdown and House Prices (2009)
    De Gruyter
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    Publication Date: 2009-03-24
    Description: This paper argues that the U.S. mortgage debacle must be analyzed in the broader setting of global real estate markets. Recent U.S. home price growth closely tracked increases in other developed economies. The analysis distinguishes among market regions in terms of supply elasticity and localized transactions-costs. A series of user-cost models are presented which imply that interest rate fluctuations must figure prominently in any explanation of movements in price/rent ratios. National factors such as the expansion of subprime credit must also be accounted for. The paper concludes with policy prescriptions addressing rapid price declines and elevated interest-rate spreads. We argue that the federal government should play a leading role in helping to reduce interest rates on new mortgages and cushion against underwriting losses on the existing balance sheets of lenders.
    Electronic ISSN: 1935-1682
    Topics: Economics
    Published by De Gruyter
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  • 2
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    The Rise in Mortgage Defaults (2009)
    American Economic Association
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    Publication Date: 2009-01-01
    Description: The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as “subprime” or “near-prime.” 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 mortgages. However, as markets realized the extent of the poor underwriting, underwriting standards tightened and borrowers began to face difficulties refinancing; this dynamic suggests that these unconventional products could pose problems going forward.
    Print ISSN: 0895-3309
    Electronic ISSN: 1944-7965
    Topics: Economics
    Published by American Economic Association
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  • 3
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    Assessing High House Prices: Bubbles, Fundamentals and Misperceptions (2005)
    American Economic Association
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    Publication Date: 2005-11-01
    Description: How does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble? In this paper, we explain how to assess the state of house prices—both whether there is a bubble and what underlying factors support housing demand—in a way that is grounded in economic theory. In doing so, we correct four common fallacies about the costliness of the housing market. For a number of reasons, conventional metrics for assessing pricing in the housing market such as price-to-rent ratios or price-to-income ratios generally fail to reflect accurately the state of housing costs. To the eyes of analysts employing such measures, housing markets can appear “exuberant” even when houses are in fact reasonably priced. We construct a measure for evaluating the cost of home owning that is standard for economists—the imputed annual rental cost of owning a home, a variant of the user cost of housing—and apply it to 25 years of history across a wide variety of housing markets. This calculation enables us to estimate the time pattern of housing costs within a market. As of the end of 2004, our analysis reveals little evidence of a housing bubble.
    Print ISSN: 0895-3309
    Electronic ISSN: 1944-7965
    Topics: Economics
    Published by American Economic Association
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