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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. Data source: Freddie Mac’s Conventional Mortgage House Price Index (CMHPI). House Price Appreciation in Miami. Data sources: Freddie Mac; BLS.

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House Prices and Mortgage Lending Patterns Across MSAs

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  1. House Prices and Mortgage Lending Patterns Across MSAs Laura Berlinghieri UW – Eau Claire

  2. House Price Appreciation in Miami Data source: Freddie Mac’s Conventional Mortgage House Price Index (CMHPI)

  3. House Price Appreciation in Miami Data sources: Freddie Mac; BLS

  4. Real House Price Appreciation in Milwaukee, Minneapolis Data sources: Freddie Mac; BLS

  5. Real Per Capita IncomeAverage Across Major MSAs Data sources: FRED database; BLS

  6. Real Interest Rate on Conventional MortgagesAverage Across Major MSAs Data sources: FNMA’s Monthly Interest Rate Survey (MIRS); BLS

  7. Housing Opportunity Index Share of homes sold that would be affordable to family earning median income; 30-yr FRM; 10% downpayment Data source: National Association of Home Builders (NAHB)

  8. Mortgage Lending ActivityAverage Percentage Change Across Major MSAs Data sources: Home Mortgage Disclosure Act (HMDA); BLS

  9. Fraction of Originated Mortgages Sold to Non-Governmental Agency InvestorsAverage Across Major MSAs Data source: Home Mortgage Disclosure Act (HMDA)

  10. 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

  11. 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

  12. 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

  13. Measuring Mortgage LendingActivity • 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

  14. Basic Regression • Panel data (N=26; T=9) estimated with fixed effects • Regression specification: with three possible measures of ΔLending: ΔNumLoan, ΔVolLoan, orΔNGShare

  15. Empirical Results Notes: Robust standard errors in parentheses; Adjusted R2 is 0.69, 0.71, 0.72, respectively.

  16. 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

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