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House Prices and Mortgage Lending Patterns Across MSAs. Laura Berlinghieri UW – Eau Claire. House Price Appreciation in Miami. Data source: Freddie Mac’s Conventional Mortgage House Price Index (CMHPI). House Price Appreciation in Miami. Data sources: Freddie Mac; BLS. - PowerPoint PPT Presentation
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House Prices and Mortgage Lending Patterns Across MSAs
Laura BerlinghieriUW – Eau Claire
House Price Appreciation in Miami
2000 2001 2002 2003 2004 2005 2006 2007 2008
-30%
-20%
-10%
0%
10%
20%
30% 25.5%Chart Title
Data source: Freddie Mac’s Conventional Mortgage House Price Index (CMHPI)
House Price Appreciation in Miami
2000 2001 2002 2003 2004 2005 2006 2007 2008
-30%
-20%
-10%
0%
10%
20%
30% 25.5%
21.4%
Nominal Appreciation Real AppreciationData sources: Freddie Mac; BLS
Real House Price Appreciation in Milwaukee, Minneapolis
2000 2001 2002 2003 2004 2005 2006 2007 2008
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%7.2%
8.0%
MilwaukeeMinneapolis-St.Paul
Data sources: Freddie Mac; BLS
Real Per Capita IncomeAverage Across Major MSAs
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 $30,000
$31,000
$32,000
$33,000
$34,000
$35,000
$36,000
Data sources: FRED database; BLS
Real Interest Rate on Conventional MortgagesAverage Across Major MSAs
1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
1
2
3
4
5
6%
Data sources: FNMA’s Monthly Interest Rate Survey (MIRS); BLS
Housing Opportunity Index
1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
102030405060708090
100
MSA Average Indianapolis San Francisco
Data source: National Association of Home Builders (NAHB)
Share of homes sold that would be affordable to family earning median income; 30-yr FRM; 10% downpayment
Mortgage Lending ActivityAverage Percentage Change Across Major MSAs
200020012002200320042005200620072008
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Number of Mortgage Orig-inationsReal Dollar Volume of Mortgage Originations
Data sources: Home Mortgage Disclosure Act (HMDA); BLS
Fraction of Originated Mortgages Sold to Non-Governmental Agency Investors
Average Across Major MSAs
19992000
20012002
20032004
20052006
20072008
0
10
20
30
40
50
60
70
80
Share of Loans Sold by Number of LoansShare of Loans Sold by Dollar Volume of Loans
%
Data source: Home Mortgage Disclosure Act (HMDA)
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 non-governmental 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 ResultsExplanatory Variable ΔLending =ΔNumLoan ΔLending =ΔVolLoan ΔLending =ΔNGShareΔIncome 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