Housing and the Macroeconomy
Paper Session
Saturday, Jan. 8, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Patrick Moran, University of Copenhagen and IFS
The Covid-19 Housing Boom: A Result of Fiscal Policy?
Abstract
We analyze the ability of income replacement and foreclosure prevention policies to reduce the severity of the 2020 covid recession in a quantitative general equilibrium model. Our model features separate “in person” and ”socially distanced” types of consumption, asset markets for housing, mortgages, bank deposits, and price and wage rigidities that potentially lead to involuntary unemployment. The recession is triggered by a sharp drop in aggregate demand, in particular for in person consumption. Many workers that produce in person goods become unemployed and without an aggressive policy response would haveseverely cut back on their consumption and defaulted on their mortgages. This drop in consumption demand and wave of mortgage defaults would have led to unemployment in other sectors of the economy and led to a crash in house prices. With a realistic policy response, our model generates a boom in house prices, growth in the financial sector, and no increase in unemployment outside of the in person goods sector.
Racial Heterogeneity in Mortgage Outcomes During the COVID-19 Pandemic
Abstract
The pandemic was characterized by both exceptionally high rates of mortgage non-payment and exceptionally high refinancing volumes. Compared to Non-Hispanic White borrowers, Black and Hispanic White borrowers suffered more from non-payment and benefited less from refinances. Higher non-payment rates reflected both a higher transition into nonpayment status for Black and Hispanic White borrowers and a lower likelihood of resuming payments. However, high house price appreciation means that for borrowers in nonpayment, transition to foreclosure is much less likely than it was in the 2007-2010 period. The pandemic appears to have aggravated historic differences in refinancing behavior across racial and ethnic groups. Refinance gaps across races and differing propensities to borrow to buy new homes contribute to increased inequality in homeownership and household debt burdens.Stuck at Home: Housing Demand During the COVID-19 Pandemic
Abstract
The COVID-19 pandemic induced an increase in both the amount of time that householdsspend at home and the share of expenditures allocated to at-home consumption. These
changes coincided with a period of rapidly rising house prices. We interpret these facts as
the result of stay-at-home shocks that increase demand for goods consumed at home as well
as the homes that those goods are consumed in. We first test the hypothesis empirically
using US cross-county panel data and instrumental variables regressions. We find that
counties where households spent more time at home experienced faster increases in house
prices. We then study various pandemic shocks using a heterogeneous agent model with
general equilibrium in housing markets. Stay-at-home shocks explain around half of the
increase in model house prices in 2020. Lower mortgage rates explain around one third of
the price rise, while unemployment shocks and fiscal stimulus have relatively small effects on
house prices. We find that young households and first-time home buyers account for much
of the increase in housing demand during the pandemic, but they are largely crowded out
of the housing market by the equilibrium rise in house prices.
Breaking the Commitment Device: The Effect of Home Equity Withdrawal on Consumption, Saving, and Welfare
Abstract
This paper investigates the macroeconomic and welfare implications of permitting home equity withdrawal. We evaluate the trade-off between two opposing views: the benefit of improved consumption smoothing and the potential cost of weakened commitment. To disentangle their relative importance, we estimate a life-cycle model containing both channels. We find that the welfare cost of weakened commitment is substantial: approximately 1.7 times larger than the benefit of improved consumption smoothing. Both channels contribute equally to a 2.5 percentage point reduction in the personal saving rate. Welfare could be improved using state-contingent mortgages that better balance the trade-off between flexibility and commitment.Discussant(s)
Anthony DeFusco
,
Northwestern University
Jane Dokko
,
Federal Reserve Bank of Chicago
Aurel Hizmo
,
Federal Reserve Board
Lauren Lambie-Hanson
,
Federal Reserve Bank of Philadelphia
James Graham
,
University of Sydney
JEL Classifications
- E3 - Prices, Business Fluctuations, and Cycles
- G5 - Household Finance