Discussion of Mian and Sufis House Price Gains and U.S. Household - - PowerPoint PPT Presentation

▶
discussion of mian and sufi s house price gains and u s
SMART_READER_LITE
LIVE PREVIEW

Discussion of Mian and Sufis House Price Gains and U.S. Household - - PowerPoint PPT Presentation

Feb 12, 2023 254 likes •657 views

Discussion of Mian and Sufis House Price Gains and U.S. Household Spending from 2002 to 2006 Robert E. Hall Hoover Institution and Department of Economics Stanford University with help from Susan E. Woodward Lessons from the

slide-1
SLIDE 1

Discussion of Mian and Sufi’s “House Price Gains and U.S. Household Spending from 2002 to 2006”

Robert E. Hall Hoover Institution and Department of Economics Stanford University with help from Susan E. Woodward ♥ Lessons from the Financial Crisis and the Great Recession for Economic Modelling Jerusalem 19 June 2014 ·

1

slide-2
SLIDE 2

2

slide-3
SLIDE 3

Two major fundamental asset classes: business assets and housing

Households own $16 trillion in corporate equity and debt

3

slide-4
SLIDE 4

Two major fundamental asset classes: business assets and housing

Households own $16 trillion in corporate equity and debt and $22 trillion in real estate

3

slide-5
SLIDE 5

Two major fundamental asset classes: business assets and housing

Households own $16 trillion in corporate equity and debt and $22 trillion in real estate Household corporate holdings are hardly leveraged at all, while real estate is heavily leveraged

3

slide-6
SLIDE 6

Two major fundamental asset classes: business assets and housing

Households own $16 trillion in corporate equity and debt and $22 trillion in real estate Household corporate holdings are hardly leveraged at all, while real estate is heavily leveraged Non-financial business is not very leveraged, while financial institutions have heavily leveraged portfolios of mortgage claims

  • n heavily leveraged households

·

3

slide-7
SLIDE 7

Flow of Funds Accounts: Loan-to-value ratios for household holdings of the two major asset classes

10 20 30 40 50 60 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 Loan to value ratio, percent

Homes Corporate equity and debt

4

slide-8
SLIDE 8

Looking more deeply into the economics

  • f the cash-oh-hand household:

Household budget constraint

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Future consumption Current consumption

Saving Unsecured borrowing Borrowing

  • n house

5

slide-9
SLIDE 9

Cash-on-hand household

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Future consumption Current consumption

Saving Unsecured borrowing Borrowing

  • n house

6

slide-10
SLIDE 10

Effect of lower house collateral

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Future consumption Current consumption

Saving Unsecured borrowing Borrowing

  • n house

7

slide-11
SLIDE 11

Effect on current consumption

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

Future consumption Current consumption

Saving Unsecured borrowing Borrowing

  • n house

Reduction in current consumption

Choice before decline in collateral Choice after decline in collateral

8

slide-12
SLIDE 12

FHFA national house-price index, real

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 1995 1998 2001 2004 2007 2010 9

slide-13
SLIDE 13

Data from the Survey of Consumer Finances

Broken down by actual household income

10

slide-14
SLIDE 14

Data from the Survey of Consumer Finances

Broken down by actual household income House values are for all households, not just homeowners ·

10

slide-15
SLIDE 15

House values of lowest 20 percent of households by income

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 1995 1998 2001 2004 2007 2010

Lowest 20 percent FHFA price index

11

slide-16
SLIDE 16

House values of households between 20th and 40th percentile

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 1995 1998 2001 2004 2007 2010

20th to 40th percentile FHFA price index

12

slide-17
SLIDE 17

House values of households in the top 60 percent by income

0.0 0.5 1.0 1.5 2.0 2.5 1995 1998 2001 2004 2007 2010

Top 60 percent FHFA price index

13

slide-18
SLIDE 18

Observation

The income group seemingly most likely to expand home value tracked the index, while the lowest income group and the highest had value increases well above the price index ·

14

slide-19
SLIDE 19

Loan to value ratio, homeowners in lowest 20 percent by income

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1995 1998 2001 2004 2007 2010 15

slide-20
SLIDE 20

Loan to value ratio, homeowners in 20th to 40th percentile

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1 2 3 4 5 6 16

slide-21
SLIDE 21

Loan to value ratio, homeowners in 40th to 60th percentile

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1 2 3 4 5 6 17

slide-22
SLIDE 22

Loan to value ratio, homeowners in 60th to 90th percentile

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1995 1998 2001 2004 2007 2010 18

slide-23
SLIDE 23

Loan to value ratio, homeowners in 90th to 100th percentile

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1995 1998 2001 2004 2007 2010 19

slide-24
SLIDE 24

Observation

All income groups show some squeeze in 2010, in the form of rising LTVs, especially the bottom group ·

20

slide-25
SLIDE 25

Role of investors

Zhenyu Gao (Princeton Ph.D. student) and Wenli Li (Philadelphia Fed), “Real Estate Investors and the Boom and Bust of the US Housing Market” ·

21

slide-26
SLIDE 26

Investment mortgages as a percent of subprime mortgages

5 10 15 20 25 30 35 40 45 50 199019911992199319941995199619971998199920002001200220032004200520062007

AZ CA FL NV US

22

slide-27
SLIDE 27

Investment mortgages as a percent of prime mortgages

5 10 15 20 25 30 35 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 AZ CA FL NV US

V

23

slide-28
SLIDE 28
  • bservation

Investors contributed to the leverage cycle substantially ·

24

slide-29
SLIDE 29

The leverage cycle, expansion phase

Real-estate prices begin to rise

25

slide-30
SLIDE 30

The leverage cycle, expansion phase

Real-estate prices begin to rise Consumption rises as collateral expands

25

slide-31
SLIDE 31

The leverage cycle, expansion phase

Real-estate prices begin to rise Consumption rises as collateral expands Households and investors bid up prices in anticipation of further appreciation

25

slide-32
SLIDE 32

The leverage cycle, expansion phase

Real-estate prices begin to rise Consumption rises as collateral expands Households and investors bid up prices in anticipation of further appreciation Financial institutions expand highly leveraged holdings of mortgage-based assets ·

25

slide-33
SLIDE 33

Contraction phase

Real-estate prices begin to fall

26

slide-34
SLIDE 34

Contraction phase

Real-estate prices begin to fall Consumption cut by declining collateral and repayment requirements from lenders

26

slide-35
SLIDE 35

Contraction phase

Real-estate prices begin to fall Consumption cut by declining collateral and repayment requirements from lenders Price decline amplified by financial squeeze

26

slide-36
SLIDE 36

Contraction phase

Real-estate prices begin to fall Consumption cut by declining collateral and repayment requirements from lenders Price decline amplified by financial squeeze Financial crisis as thinly capitalized banks and other institutions become insolvent because of declining value of mortgage-based collateral ·

26

slide-37
SLIDE 37

Shiller’s real house price since 1890

50 100 150 200 250 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 27

slide-38
SLIDE 38

28