When?
The 2017 Rena Sivitanidou Annual Research Symposium will be held at the University of Southern California University Club on October 27, 2017. This symposium will feature a panel of leading scholars in real estate economics drawn from academic institutions. The Lusk Center will welcome scholars from the University of Wisconsin, University of Illinois, New York University, Northwestern University, University of Toronto, UCLA, and the University of Southern California. These academics will share their recent findings and opinions on real estate finance and the role of banks and securitization markets; how people form their beliefs about housing market and the impact of those beliefs on housing markets.
Presentations
Below are the presentations for the symposium, followed by the presenter's abstract and respective paper and video presentation, where available. Please note: express permission from author needed for citation or use of any material.
Andra Ghent, University of Wisconsin
Title: What’s Wrong with Pittsburgh? Discussant: Selale Tuzel, USC
I show how investor composition in the commercial real estate (CRE) market deter- mines how frequently an asset trades and its illiquidity premium. Unlike many other Over-the-Counter (OTC) markets, geography clearly demarcates CRE markets mak- ing the interplay between investor composition and liquidity easier to observe. I first document that institutional CRE investors are concentrated in cities with the most liquid CRE. While more liquid cities offer investors lower dividend yields (cap rates) than more illiquid cities, the differences are quite modest. I then calibrate a search model with investor heterogeneity in liquidity preference.
Discussant: Selale Tuzel, USC
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Rodney Ramcharan, USC
Title: Bank Balance Sheets and Liquidation Values: Evidence from Real Estate Collateral
Deflation in real asset prices, such as real estate, can last years and sometimes decades after an initial financial shock. This paper finds that bank balance sheet pressures can depress the liquidation value of distressed real assets. Using a large sample of foreclosed properties, the liquidity and solvency of a financial institution can significantly influence the timing of asset sales and the liquidation values of these assets at auction. These effects are especially large among banks with historically illiquid balance sheets or larger off- balance sheet commitments. I also find that balance sheet pressures at banks spillover onto the prices of even assets sold by non-bank owners. Taken together, the prolonged asset price busts common after crisis events can in part reflect ongoing balance sheet pressures at financial institutions.
Discussant: Rustom Irani, University of Illinois
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Eduardo Davila, NYU
Title: House Price Beliefs and Mortgage Leverage Choices
We study the effects of homebuyers’ beliefs about future house price changes on their mortgage leverage choice. We show that, from a theoretical perspective, the relationship between homebuyers’ beliefs and their leverage choice is ambiguous, and depends on the magnitude of a “collateral adjustment friction” that reduces homebuyers’ willingness to adjust their house size in response to beliefs about house price changes. When households primarily maximize the levered return of their property investment and the collateral adjustment friction is small, more optimistic homebuyers take on more leverage to purchase larger houses and profit from the greater perceived price appreciation. On the other hand, when considerations such as family size pin down the desired property size and the collateral adjustment friction is large, more optimistic homebuyers take on less leverage to finance that property of fixed size, since they perceive a higher marginal cost of borrowing. To determine which scenario better describes the data, we empirically investigate the cross-sectional relationship between beliefs and leverage in the U.S. housing market. Our data combine mortgage financing information and a housing market expectations survey with anonymized social network data from Facebook. The survey documents that an individual’s belief distribution about future house price changes is affected by the recent house price experiences of her geographically distant friends, allowing us to exploit these experiences as quasi- orthogonal shifters of individuals’ house price beliefs. We show that more optimistic homebuyers choose lower leverage, consistent with a sizable collateral adjustment friction. As predicted by the model, the magnitude of the cross-sectional relationship between beliefs and leverage choice is stronger during periods when households expect prices to fall on average.
Discussant: Cary Frydman, USC
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Amine Ouazad, HEC Montreal
Title: The Role of Beliefs and Borrowing Constraints in Dynamic Models of Location Choice
This paper develops a general equilibrium model of location choice with social interactions where mortgage approval rates determine household-specific choice sets that differ across neigh- borhoods and years in observable and unobservable dimensions. Existence and local uniqueness of city equilibria enable comparative statics estimates of the impact of changes in borrowing constraints on neighborhood-level prices and demographics. Estimation the model using micro data on property transactions, household demographics, neighborhood amenities, mortgage ap- plications, and bank liquidity for the San Francisco Bay area, reveals that the price sensitivity of borrowing constraints explains about two-thirds of the price elasticity of neighborhood demand. General equilibrium estimates of the impact of the relaxation of lending standards on prices and neighborhood demographics bring two out-of-sample predictions for the period 2000-2006: (i) an increase in house prices accompanied by a compression of the price distribution and (ii) a reduction in the isolation of Whites in line with evidence of gentrification in the San Francisco Bay. Both predictions are supported by empirical observation.
Discussant: Chris Redfearn, USC
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Brian Melzer, Kellog School of Business, Federal Reserve Bank of Chicago
Title: Making the House a Home: The Stimulative Effect of Home Purchases on Consumption and Investment
We introduce and quantify a new channel through which the housing market affects household spending: the home purchase channel. Using an event-study design with data from the Consumer Expenditure Survey, we show that households spend on average $3,700 more in the months before and the first year following a home purchase. This spending is concentrated in the home- related durables and home improvements sectors, which are complementary to the purchase of the house. Expenditures on nondurables and durables unrelated to the home remain unchanged or decrease modestly. We estimate that the home purchase channel played a substantial role in the Great Recession, accounting for one-third of the decline in home-related durables spending and a fifth of the decline in home maintenance and investment spending from 2005 to 2010, together totaling $14.3 billion annually.
Discussant: Barney Hartman, UCLA
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Nate Baum-Snow, University of Toronto
Title: Accounting for Central Neighborhood Change: 1980-2010
Central neighborhoods of most U.S. metropolitan areas experienced 1980-2000 population declines and 2000-2010 revitalization. 1980-2000 departures of residents without a college degree accounted for most of the declines while the return of col- lege educated whites and the stabilization of neighborhood choices by less educated whites drove most of the post-2000 rebounds. Increases in amenity valuations after 2000 encouraged college-educated whites to move in and other whites to remain. Continued departures of less than college educated minorities were mainly driven by their continued reductions in demand for downtown amenities.
Discussant: Matthew Kahn, USC
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Stuart Gabriel, UCLA
Title: A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession
We investigate the housing and broader economic effects of the 2000s crisis-period California Foreclosure Prevention Laws (CFPLs). The CFPLs encouraged lender mortgage modifications by substantially increasing the pecuniary and time costs of foreclosure. Results show that the CFPLs prevented 124,000 California foreclo- sures, increased house prices by 6.2 percent, and created $310 billion of housing wealth. Findings further indicate that gains in housing wealth translated into in- creased durable consumption. Disaggregated estimates reveal that the CFPL house price increases were markedly higher in the hard-hit areas of Southern California. Al- together, the CFPLs were highly effective in mitigating foreclosures and stabilizing housing markets.
Discussant: David Zeke, USC
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USC YouTube Site Information
USC Price YouTube Channel: http://www.youtube.com/uscprice
USC Lusk Center for Real Estate Playlist: http://goo.gl/N5T4l
For questions or comments, please contact:
Nina Tibayan
Lusk Director of Administration
213-740-0969