Housing finance in the macroeconomy
- Between the years 1998 and 2006, the total mortgage debt of U.S. households rose from 65% of GDP in 1998 to over 100% of GDP in 2006. Over the same period the value of residential real estate rose by roughly the same proportion from 180% to 280% of GDP. This thesis examines the macroeconomic link between housing and mortgage markets during the boom period from three different angles. (i) The first chapter examines the impact of increasing securitization of mortgage debt in a dynamic model of borrowers, savers, and financial intermediaries that is calibrated to the different stages of US housing finance in the postwar period. Banks lend funds to borrowers in the form of mortgages and raise those funds by issuing equity and deposits to savers. Deposits are over-collateralized claims on the banks' portfolios of mortgages. Securitization allows banks to sell part of the loans directly to savers after origination. It further allows the same allocation of risk among savers with diverse risk aversion, but at lower cost. Rising securitization gradually reduces intermediation costs and frictions. The dynamic model shows that, when agents temporarily underestimate the default risk of mortgages, the economy undergoes a boom-bust episode in debt and house prices. In the simulated model economy, securitization adds 30 percent to the peak of mortgage debt in 2006 by neutralizing the dampening effect of bank capital requirements. (ii) The second chapter uses an assignment model to understand the cross section of house prices within a metro area. Movers' demand for housing is derived from a lifecycle problem with credit market frictions. Equilibrium house prices adjust to assign houses that differ by quality to movers who differ by age, income and wealth. To quantify the model, we measure distributions of house prices, house qualities and mover characteristics from micro data on San Diego County during the 2000s boom. The main result is that cheaper credit for poor households was a major driver of prices, especially at the low end of the market. (iii) Optimism about future house price appreciation and loose credit constraints are commonly considered drivers of the recent housing boom. The third chapter infers short-run expectations of future house price growth and minimum down payment requirements from observed household choices. The expectations and credit constraints are implied by a life-cycle portfolio choice model that encompasses home ownership, housing demand, and financing choices. I estimate the parameters of this model using data from the Survey of Consumer Finances from 1995 to 2007. The main result is that both aggregate expectations of future price growth and minimum down payment requirements were declining throughout the boom, but price growth expectations stay positive throughout. The separate identification of the two channels comes from their differential impact on the intensive and extensive margins of housing demand.
|Type of resource
|electronic; electronic resource; remote
|1 online resource.
|Stanford University, Department of Economics.
|Statement of responsibility
|Submitted to the Department of Economics.
|Thesis (Ph.D.)--Stanford University, 2013.
- © 2013 by Tim Landvoigt
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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