The 2016 Rena Sivitanidou Annual Research Symposium was held at the University of Southern California University Club on March 25th, 2016. This symposium featured a panel of more than 20 leading scholars in real estate economics drawn from both academic and policy institutions. Participants came from UC Berkeley, UC Los Angeles, Northwestern University, University of Pennsylvania, University of Southern California, University of Texas at Austin, Stanford University, Federal Reserve Bank of New York, and Federal Reserve Bank of New York. These scholars gathered at USC to share their recent findings and opinions on the past and future developments of the housing market and how they related to the American economy.
The day-long symposium started with a welcome speech from Rodney Ramcharan, the Research Director of the Lusk Center for Real Estate and Associate Professor of Public Policy at the University of Southern California. The symposium continued with seven sessions of presentations. Each presentation was followed by a discussion and a Q&A section. These sessions covered a wide range of cutting-edge topics within the real estate economics interacting with finance, macroeconomics, and urban economics.
Such topics included: The impact of monetary policy, such as quantitative easing, on the US mortgage market; household behavior and the housing market, including papers on how individuals might form home price expectations; the role of mortgage debt and credit access in the financial crisis; and the connection between homeowner borrowing and housing collateral. Other areas of focus also included self-dealing conflicts in the market of commercial mortgage-backed securities; the role of housing supply elasticity in determining local government rent extraction; and analyses on how quasi-public institutions like Fannie Mae and Freddie Mac shape US housing markets.
Maisy Wong, Wharton School of Business, Real Estate Department, University of Pennsylvania
Title: CMBS and Conflicts of Interest: Evidence from a Natural Experiment on Servicer Ownership
The paper provides the first direct measure of self-dealing that links buyers and sellers in securities markets in the United States. It studies a natural experiment in commercial mortgage-backed securities (CMBS) where some special servicers changed owners (treatment group) from 2009-2010 but not others (placebo group). The paper argues that the ownership change presents a classic self-dealing conflict and finds that average loss rates for liquidations are 11 percentage points’ higher (implying additional losses of $3.2 billion for bondholders) after treated special servicers changed owners, but not for the placebo group.
Discussant: Mark Garmaise, Anderson School of Management, University of California, Los Angeles
Andreas Fuster, Federal Reserve Bank of New York
Title: Home Price Expectations and Behavior: Evidence from a Randomized Information Experiment (with Luis Armona and Basit Zafar)
This paper studies how home price expectations are formed and how they affect behavior, using a unique “information experiment” embedded in an online survey. This experiment first elicits respondents’ expectations for home price changes in their zip code. Then it re-elicits a random subset of respondents’ expectations for home price changes after presenting them with objective information about actual home price changes in their zip code. This procedure creates unique panel data that allow identification of the causal effects of this objective information. Based on the data, the paper finds that the majority of respondents revise their expectations, and their updated home price expectations are consistent with perceived momentum in home prices at the short horizon. The paper also presents robust evidence of home price expectations impacting (actual and hypothetical) housing-related behavior.
Discussant: Ida Johnsson, Dornsife College of Letters, Arts, and Sciences, Economics Department, University of Southern California
Amir Kermani, Haas School of Business, University of California, Berkeley
Title: Unconventional Monetary Policy and the Allocation of Credit
This paper documents a "flypaper effect" of large-scale asset purchases (LSAPs) by central banks, using rich mortgage-market data. This "flypaper effect" means that the transmission of unconventional monetary policy to interest rates and (more importantly) origination volumes depends crucially on the nature of the assets purchased. For example, QE1, which involved significant purchases of GSE-guaranteed mortgages, increased GSE-guaranteed mortgage originations significantly more than the origination of non-GSE mortgages. In contrast, QE2's focus on purchasing Treasuries did not have such differential effects. This de facto allocation of credit across mortgage market segments, combined with sharp bunching around GSE eligibility cutoffs, establishes an important complementarity between mortgage market policy and the effectiveness of Fed MBS purchases. In particular, more relaxed GSE eligibility requirements would have resulted in more refinancing from economically distressed regions and fewer households deleveraging overall. Overall, our results are consistent with the capital constraints channel of unconventional monetary policy.
Discussant: Rodney Ramcharan, Sol Price School of Public Policy, University of Southern California
Paul Willen, Federal Reserve Bank of Boston
Title: Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Stocks and Flows
This paper shows that the distribution of debt stocks with respect to income changed little over the course of the boom, because debt-growth rates were similar across the income distribution. Moreover, because high-income borrowers always account for a disproportionately large share of outstanding mortgage debt, the uniform rates of debt growth imply that high-income borrowers took out far more debt in dollar terms. The equality of debt growth rates across income groups is consistent with subsequent foreclosures, as defaults across income categories rose in rough proportion as well. This paper points out that previous research purporting to show that the distribution of debt shifted toward low-income borrowers was based on data on the flow of new mortgage originations alone, so this research could not detect the offsetting shifts in mortgage terminations that left the distribution of debt constant over time.
Discussant: Chris Redfearn, Sol Price School of Public Policy, University of Southern California
Anthony DeFusco, Kellogg School of Management, Northwestern University
Title: Homeowner borrowing and housing collateral: new evidence from expiring price controls
The paper studies how changes to the collateral value of real estate assets affect homeowner borrowing behavior. To isolate the role of collateral constraints from that of wealth effects, it exploits the fully-anticipated expiration of resale price controls on owner-occupied housing in Montgomery County, Maryland. It estimates a marginal propensity to borrow out of housing collateral that ranges between $0.04–$0.13 and is correlated with homeowners’ initial leverage. Additional analysis of residential investment and ex-post loan performance indicates that some of the extracted funds generated new expenditures. These results suggest an important role for house price growth in driving aggregate consumption.
Discussant: Gary Painter, Sol Price School of Public Policy, University of Southern California
Rebecca Diamond, Graduate School of Business, Stanford University
Title: Housing Supply Elasticity and Rent Extraction by State and Local Governments
This paper studies how housing supply elasticity affects the rent extraction of state and local governments, using a spatial equilibrium model. Governments may extract rent from private citizens by inflating taxes and spending on projects benefiting special interests. Inelastic housing supply, driven by exogenous variation in local topography, raises local governments’ tax revenues and causes citizens to combat rent seeking by enacting laws limiting power of elected officials. The paper finds that public sector workers, one of the largest government special interests, capture a share of these rents through increased compensation when collective bargaining is legal or through corruption when collective bargaining is outlawed.
Discussant: Matt Khan, Dornsife College of Letters, Arts, and Sciences, Economics Department, University of Southern California
Tim Landvoigt, McCombs School of Business, University of Texas at Austin
Title: Phasing out the GSEs (with Vadim Elenev and Stijn Van Nieuwerburgh )
This paper develops a new model of the mortgage market that emphasizes the role of the ﬁnancial sector and the government. Risk tolerant savers act as intermediaries between risk adverse depositors and impatient borrowers. Both borrowers and intermediaries can default. The government provides both mortgage guarantees and deposit insurance. Underpriced government mortgage guarantees lead to more and riskier mortgage originations and higher ﬁnancial sector leverage. Mortgage crises occasionally turn into ﬁnancial crises and government bailouts due to the fragility of the intermediaries’ balance sheets. Foreclosure crises beget ﬁscal uncertainty, further disrupting the optimal allocation of risk in the economy. Increasing the price of the mortgage guarantee “crowds in” the private sector, reduces ﬁnancial fragility, leads to fewer but safer mortgages, lowers house prices, and raises mortgage and risk-free interest rates. Due to a more robust ﬁnancial sector and less ﬁscal uncertainty, consumption smoothing improves and foreclosure rates fall. While borrowers are nearly indiﬀerent to a world with or without mortgage guarantees, savers are substantially better oﬀ. While aggregate welfare increases, so does wealth inequality.
Discussant: Selale Tuzel, Marshall School of Business, University of Southern California
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Lusk Director of Administration