Real Estate Finance
Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM
- Chair: Rodney Ramcharan, University of Southern California
Identifying the Benefits from Home Ownership: A Swedish Experiment
AbstractThis paper studies the economic benefits of home ownership. Exploiting a quasi-experiment surrounding privatization decisions of municipally-owned apartment buildings, we obtain random variation in home ownership for otherwise similar buildings with similar tenants. We link the tenants to their tax records to obtain information on demographics, income, mobility patterns, housing wealth, financial wealth, and debt. These data allow us to construct high-quality measures of consumption expenditures. Home ownership causes households to move up the housing ladder, work harder, and save more. Consumption increases out of housing wealth are concentrated among the home owners who sell subsequent to privatization and among those who receive negative income shocks, evidencing a collateral effect.
An Equilibrium Model of Housing and Mortgage Markets with State-Contingent Lending Contracts
AbstractWe develop a tractable general equilibrium framework of housing and mortgage markets with aggregate
and idiosyncratic risks, costly liquidity and strategic defaults, empirically relevant informational asymmetries, and endogenous mortgage design. We show that adverse selection plays an important role in shaping the form of an equilibrium contract. If borrowers' homeownership values are known, the equilibrium state-contingent contract depends on both aggregate wages and house prices. However, when lenders cannot observe borrowers' homeownership values, the equilibrium contract only depends on house prices and takes the form of a home equity insurance mortgage (HEIM) that eliminates the strategic default option and insures the borrower's equity position. Interestingly, we show that widespread adoption of such loans has ambiguous effects on the homeownership rate and household welfare. In economies in which recessions are expected to be severe, the HEIM equilibrium Pareto dominates the equilibrium with fixed-rate mortgages. However, if economic downturns are not severe, HEIMs can lower the homeownership rate and make some marginal home buyers worse-off. We also note that adjustable-rate mortgages may share some benefits with HEIMs. Finally, we find that unrestricted competition in contract design among lenders may lead to a non-existence of equilibrium. This suggests that government-sponsored enterprises may stabilize mortgage markets by subsidizing certain lending contracts.
Lending Competition and Non-Traditional Mortgages
AbstractWe provide new perspectives on the rampant growth of non-traditional mortgages (NTMs) prior
to the Great Recession by showing that local lending competition contributed significantly to the
early growth of NTMs while growth of non-bank lending played an important role in expanding
NTMs at a later stage. We also find that state level anti-predatory lending laws were more (less)
effective in restraining the origination of NTMs in markets with higher (lower) levels of lending
- G2 - Financial Institutions and Services
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location