FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Innovations in Mortgage Markets and Increased Spending on Housing Mark S. Doms Federal Reserve Bank of San Francisco John Krainer Federal Reserve Bank of San Francisco
that speaks to some of the things that I've been concerned about. (Remember, you can always find learned opinions to support your point of view. It doesn't mean that you are right, merely that you have good company).
There were a few things that I wanted to share with you:
First, let's look at the increase in homeownership and housing prices:
I will profess a little surprise that the housing stock (which I take to mean available homes=existing plus newly build) % to be as low as it was. I conclude, perhaps erroneously, that the percentage of new housing to existing housing--though great in absolute numbers--is small in relative percentage. Nevertheless, the increase in homeownership is impressive.
Second, and a bit unrelated to my overall purpose, but a statistic that I think deserves some airtime is the amount of employment in the mortgage banking sector.
You might expect that the slope of the employment line would be steeper, but one of the points in the paper was the amount of productivity increases:
"Most recently (mid 1990s to mid-2000s), technology has played an important role in stimulating these changes in the mortgage market by improving the ability of lenders to gather and process information. Consumers now appear to face lower costs for obtaining mortgages, refinancing existing mortgages, and extracting home equity; a better ability of mortgage issuers to measure and price the risk of mortgage applicants; and a greater array of mortgageinstruments from which consumers can choose."
The third schedule shows the the the increase of MBS's in private conduits. You know why I'm interested in that !!!!
The slope of this curve is astounding.
But also consider this little ditty (I've added the underlines):
"As the down payment constraint is eased, housing consumption increases monotonically. Moving from a down payment rate of 20 percent to 10 percent results in a 24 percent increase in the quantity of housing purchased. As can be observed on the left-hand scale of Figure 5a, this increase in housing consumption also accompanies an increase in total lifetime utility. Not surprisingly, the easing of constraints makes households happier. However, the increase in housing consumption comes at the expense of non-housing consumption."Finally, here's the table that reflects the relationship of housing expenditures on consumption.
As you know, there has been much discussion about the resiliency of the consumer. My sense of it is that the consumer is reaching the saturation of point of consumption. The salient points in this paper (to the extent that I understand them correctly) are
- Mortgage innovations have allowed people to buy more house than they would otherwise (though I will concede that "more" house may solely be to buy the inflated cost of a house they would have purchased more cheaply otherwise).
- Housing expenditures increase at the expense of other consumption
- The percent of homeowners has increase dramatically over the last few years