Interest Rates and Equity Extraction During the Housing Boom PDF Download
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Author: Neil Bhutta
Publisher:
ISBN:
Category : Home equity loans
Languages : en
Pages : 54
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Book Description
Monetary policy is perhaps the most important tool the government has to quickly affect the trajectory of the economy. This paper estimates the impact of policy- driven short-term mortgage rates on home equity based borrowing. Using credit record panel data from 1999-2010, we show that the likelihood of equity extraction peaked in 2003 when mortgage rates hit historic lows, and estimate that a 100 basis point rate decline leads to a 25 percent rise in extraction. Exploiting geographic variation in house price fluctuations, we find this rate effect is half the magnitude of the house price effect. Additionally, differential responses by age and credit score provide new evidence of financial frictions. Finally, equity extraction increases default risk, most strikingly for those extracting in 2006 when both interest rates and house prices were peaking. Conditional on many factors including credit score, zip code house price changes and county fixed effects, those who extracted in 2006 were 90 percent more likely to become delinquent on a mortgage than non-extractors over the next four years.
Author: Neil Bhutta
Publisher:
ISBN:
Category : Home equity loans
Languages : en
Pages : 54
Get Book Here
Book Description
Monetary policy is perhaps the most important tool the government has to quickly affect the trajectory of the economy. This paper estimates the impact of policy- driven short-term mortgage rates on home equity based borrowing. Using credit record panel data from 1999-2010, we show that the likelihood of equity extraction peaked in 2003 when mortgage rates hit historic lows, and estimate that a 100 basis point rate decline leads to a 25 percent rise in extraction. Exploiting geographic variation in house price fluctuations, we find this rate effect is half the magnitude of the house price effect. Additionally, differential responses by age and credit score provide new evidence of financial frictions. Finally, equity extraction increases default risk, most strikingly for those extracting in 2006 when both interest rates and house prices were peaking. Conditional on many factors including credit score, zip code house price changes and county fixed effects, those who extracted in 2006 were 90 percent more likely to become delinquent on a mortgage than non-extractors over the next four years.
Author: Neil Bhutta
Publisher:
ISBN:
Category :
Languages : en
Pages : 55
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Book Description
Using credit record panel data from 1999-2010, we show that the likelihood of home equity extraction (borrowing, on average, about $40,000 against one's home) peaked in 2003 when mortgage rates hit historic lows, and estimate that a 100 basis point rate decline is associated with a 25 percent rise in the likelihood of extraction. Further, this relationship is amplified in ZIP codes with substantial house price growth. Differential responses to interest rates and home price appreciation by age and credit score provide new evidence of financial frictions. Finally, equity extraction is associated with higher default risk, especially for extractors in 2006 who were more than twice as likely to become delinquent on a mortgage than non-extractors over the next four years.
Author: Thomas Sowell
Publisher: Basic Books (AZ)
ISBN: 0465018807
Category : Business & Economics
Languages : en
Pages : 194
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Book Description
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: 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.
Author: Thomas Sowell
Publisher: Basic Books
ISBN: 0786747552
Category : Business & Economics
Languages : en
Pages : 258
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Book Description
This is a plain-English explanation of 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 the even more "creative" marketing of financial securities based on American mortgages to countries around the world, are part of the story of how a financial house of cards was built up -- and then suddenly collapsed. The politics behind all this is another story full of strange twists. No punches are pulled when discussing politicians of either party, the financial dangers they created, or the distractions they created later to escape their own responsibility for what happened when the financial house of cards in the financial markets collapsed. What to do, now that we are in the midst of an economic disaster, is yet another story -- one whose ending we do not yet know, but one whose outlines and implications are explored to reveal some surprising and sobering lessons.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Thomas Sowell
Publisher: ReadHowYouWant.com
ISBN: 145960931X
Category : Business & Economics
Languages : en
Pages : 370
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Book Description
Scary headlines and scarier statistics tell the story of a financial crisis on a scale not seen in decades - certainly not within the lifetime of most Americans. Moreover, this is a worldwide financial crisis. Financial institutions on both sides of the Atlantic have either collapsed or have been saved from collapse by government bailouts, as a result of buying securities based on American housing values that eroded or evaporated.Now completely revised in paperback, The Housing Boom and Bust is designed to unravel the tangled threads of that story. It also attempts to determine whether what is being done to deal with the problem is more likely to make things better or worse.
Author: Kevin Erdmann
Publisher: Post Hill Press
ISBN: 1637581629
Category : Business & Economics
Languages : en
Pages : 235
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Book Description
Remember when mania led to a massive housing bubble? When Americans found themselves saddled with too many houses and were hit with the reality that our economy had been built on unsustainable borrowing? Everyone knows about that, right? What if that was wrong? What if, when we get down to brass tacks, Americans have been struggling to build enough new housing—especially in places where housing is in high demand—and this was true, even in 2005? Viewing the economic calamities of the twenty-first century with this central insight turns the conventional wisdom about our economic challenges upside down. The need for more homes has been the core cause of American economic instability and stagnation. Building from the Ground Up will guide you to a sweeping new perspective about the Great Recession and the financial crisis, which points to a brighter path for America’s economic potential.
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: Edward L. Glaeser
Publisher: University of Chicago Press
ISBN: 9780226030586
Category : Business & Economics
Languages : en
Pages : 0
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Book Description
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.
