Transcript House Prices and Mortgage Lending Patterns Across MSAs

House Prices and Mortgage
Lending Patterns Across MSAs
Laura Berlinghieri
UW – Eau Claire
House Price Appreciation in Miami
30%
25.5%
20%
10%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
-10%
-20%
-30%
Data source: Freddie Mac’s Conventional Mortgage House Price Index (CMHPI)
House Price Appreciation in Miami
30%
25.5%
20%
21.4%
10%
0%
2000
2001
2002
2003
2004
2005
2006
-10%
-20%
-30%
Nominal Appreciation
Data sources: Freddie Mac; BLS
Real Appreciation
2007
2008
Real House Price Appreciation
in Milwaukee, Minneapolis
10.0%
8.0%
8.0%
7.2%
6.0%
4.0%
2.0%
Milwaukee
0.0%
-2.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
-4.0%
-6.0%
-8.0%
-10.0%
Data sources: Freddie Mac; BLS
Minneapolis-St.Paul
Real Per Capita Income
Average Across Major MSAs
$36,000
$35,000
$34,000
$33,000
$32,000
$31,000
$30,000
1999
2000
2001
2002
Data sources: FRED database; BLS
2003
2004
2005
2006
2007
2008
Real Interest Rate on Conventional Mortgages
Average Across Major MSAs
6 %
5
4
3
2
1
0
1999
2000
2001
2002
2003
2004
2005
2006
Data sources: FNMA’s Monthly Interest Rate Survey (MIRS); BLS
2007
2008
Housing Opportunity Index
Share of homes sold that would be affordable to family earning median
income; 30-yr FRM; 10% downpayment
100
80
60
40
20
0
1999
2000
2001
2002
MSA Average
2003
2004
Indianapolis
2005
2006
San Francisco
Data source: National Association of Home Builders (NAHB)
2007
2008
Mortgage Lending Activity
Average Percentage Change Across Major MSAs
30.0%
20.0%
10.0%
0.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
-10.0%
Number of Mortgage
Originations
Real Dollar Volume of
Mortgage Originations
-20.0%
-30.0%
-40.0%
Data sources: Home Mortgage Disclosure Act (HMDA); BLS
Fraction of Originated Mortgages Sold to
Non-Governmental Agency Investors
Average Across Major MSAs
80 %
70
60
50
40
30
20
10
0
Data source: Home Mortgage Disclosure Act (HMDA)
Share of Loans Sold by
Number of Loans
Share of Loans Sold by
Dollar Volume of Loans
Literature
• Linneman and Wachter (1989)
– Mortgage market innovations (e.g. ARMs) reduce
borrowing constraints, reducing barriers to
homeownership
• Mian and Sufi (2008)
– Rapid increase in supply of credit to areas with high
latent demand for mortgages was primary cause of
house price boom
• Lamont and Stein (1999)
– In cities with large fraction of highly leveraged (e.g.
high LTV) households, house prices are more sensitive
to income shocks
Expectations
• Households in MSAs with low housing
affordability will be more sensitive to changes
in income, availability of mortgages
– House prices will be more sensitive to these
demand shocks
Housing Affordability
• By design, a larger number for NAHB’s
Housing Opportunity Index (HOI) represents a
high availability of affordable housing
• Define: Constrained = 1 – HOI
– An increase in Constrained represents a larger
percentage of homes sold that can’t be afforded
by family with median income and the “typical”
mortgage
Measuring Mortgage Lending Activity
• Alternative measures of ΔLending variable:
– Volume of single-family, purchase-only mortgages
originated
• Measured by number of loans: NumLoans
• Measured by real dollar volume of loans: VolLoans
– Share of originated mortgages sold to nongovernmental agency investors: NGShare
– All three calculated from HMDA data
Basic Regression
• Panel data (N=26; T=9) estimated with fixed effects
• Regression specification:
with three possible measures of ΔLending:
ΔNumLoan, ΔVolLoan, or ΔNGShare
Empirical Results
Explanatory Variable
ΔLending
=ΔNumLoan
ΔLending
=ΔVolLoan
ΔLending
=ΔNGShare
ΔIncome
0.349
(0.347)
0.265
(0.364)
0.721**
(0.307)
ΔIntRate
-0.417
(2.087)
0.889
(2.366)
2.292
(1.688)
ΔLending
-0.123***
(0.020)
-0.061**
(0.029)
0.101
(0.076)
Constrained
0.161***
(0.046)
0.160***
(0.052)
0.132***
(0.036)
Constrained*ΔIncome
1.022**
(0.421)
0.962**
(0.476)
-0.212
(0.329)
Constrained*ΔIntRate
0.528
(1.358)
0.441
(1.291)
-0.033
(1.209)
Constrained*ΔLending
0.294***
(0.043)
0.257***
(0.054)
0.563***
(0.081)
Notes: Robust standard errors in parentheses; Adjusted R2 is 0.69, 0.71, 0.72,
respectively.
Next Steps
• Improve current regression setup
– Should “constrained”/affordability measure be a
dummy variable?
– Alternative measure of mortgage market activity:
% of mortgage originations that are high APR
• Incorporate land share information from Davis
and Palumbo (2008)
– MSAs with high land share are likely to experience
more house price volatility in response to demand
shocks