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Search A A A REAL ESTATE RESEARCH ABOUT March 5, 2014 REAL ESTATE RESEARCH SEARCH Real Estate Research provided analysis of topical research and current issues in the fields of housing and real estate economics. Authors for the blog included the Atlanta Fed's Jessica Dill, Kristopher Gerardi, Carl Hudson, and analysts, as well as the Government Involvement in Residential Mortgage Markets Search RECENT POSTS With the federal funds rate effectively at the zero lower bound, the Federal Reserve has used unconventional forms of monetary policy. Specifically, the central bank has issued forward guidance about the policy path and purchased Assessing the Size and Spread of Vulnerable Renter Households in large amounts of U.S. Treasury bonds and agency mortgage-backed securities (MBS) in an effort to lower long-term interest rates. In the case of agency MBS the Southeast What's Being Done to Help Renters In December 2020, content from Real Estate Research became part of purchases, a goal was to stimulate the housing market by lowering mortgage rates. Two papers presented at the recent Atlanta Fed/University of North during the Pandemic? An Update on Forbearance Trends Policy Hub. Future articles will be released in Policy Hub: Macroblog. Carolina—Charlotte conference, "Government Involvement in Residential Mortgage Markets," examine the extent to which the Federal Reserve has been Examining the Effects of COVID-19 on the Southeast Housing Market successful. Southeast Housing Market and COVID-19 Unanticipated announcements of new large-scale asset purchase programs (LSAPs), or changes in these programs, should have an immediate impact on Update on Lot Availability and Construction Lending interest rates under the assumption that the total stock of purchases is what matters. On the other hand, the flow of purchases may independently influence Tax Reform's Effect on Low-Income Housing markets through portfolio rebalancing—that is, investors reacting to the removal of duration and convexity from the market—and liquidity effects—that is, ease of Housing Headwinds Where Is the Housing Sector reselling assets in the future. Diana Hancock and Wayne Passmore conduct an empirical analysis of the differing effects of the LSAPs in their paper, "How the Headed? Did Harvey Influence the Housing Federal Reserve's Large-Scale Asset Purchases Influence MBS Yields and Mortgage Rates." Using weekly data from July 2000 to June 2013, the authors Market? CATEGORIES estimate a model of MBS yields that controls for market expectations about future interest rates and find that the Federal Reserve's market share of MBSs Affordable housing goals and Treasuries are negatively related to MBS yields. Under their model, the Fed's holdings of MBSs has lowered MBS yields by 54 basis points and the Credit conditions Expansion of mortgage credit Treasury holdings have pushed down the MBS yields another 70 basis points. This finding is consistent with portfolio rebalancing and liquidity effects being Federal Housing Authority Financial crisis important determinants of MBS yields. Foreclosure contagion Foreclosure laws The finding is important because it suggests that agency MBS yields and mortgage rates will rise when the Federal Reserve reduces its MBS purchases— Governmentsponsored enterprises GSE even if the Fed successfully signals that it intends to keep rates low for an extended time. On the margin, this could serve to dampen housing market Homebuyer tax credit Homeownership activity, including refinancing. Since the beginning of the third phase of quantitative easing (QE3), the Fed's MBS market share has grown from around House price indexes Household formations 17 percent to nearly 24 percent. Given the estimate that each percentage point increase in market share pushes MBS yields down by 2.3 basis points, reducing Housing boom Housing crisis the Fed’s MBS market share back to a pre-QE3 level would push MBS yields up by around 16 basis points, which is unlikely to be economically meaningful. Housing demand Housing prices While the cost of mortgage refinancing is borne by MBS investors, most of the Income segregation Individual Development Account policy attention is placed on the benefit to borrowers through an increase in their disposable income. In cases where borrowers are underwater and having Loan modifications Monetary policy difficulty making mortgage payments, refinancing can ease borrowers’ financial distress. In "The Effect of Mortgage Payment Reduction on Default: Evidence Mortgage crisis Mortgage default from the Home Affordable Refinance Program," Jun Zhu, Jared Janowiak, Lu Ji, Kadiri Karamon, and Douglas McManus estimate that during the 2009 to 2012 Mortgage interest tax deduction Mortgage supply period, a 10 percent reduction in monthly mortgage payments for participants in Freddie Mac’s Home Affordable Refinance Program (HARP) resulted in a 12 Multifamily housing Negative equity percent reduction in the monthly default hazard for 30-year fixed rate conventional-conforming mortgages. This likely helped slow the flow of Positive demand shock Positive externalities mortgages entering the foreclosure pipeline and gave neighborhoods time to stabilize. Rental homes Securitization Government involvement in residential mortgage markets takes many forms (see Subprime MBS Subprime mortgages the conference website for papers that examine other forms of intervention). Taken together, the papers discussed here provide evidence that the Federal Supply elasticity Uncategorized Reserve's LSAPs and Freddie Mac's HARP did put downward pressure on longer-term interest rates and facilitated refinancing activity that helped to Upward mobility Urban growth Boston Fed's Christopher Foote and Paul Willen. Disclaimer Email Me Subscribe by E-mail Subscribe by RSS Other Fed Websites Comment Standards: Comments are moderated and will not appear until the moderator has approved them. Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political. In addition, no off-topic remarks or spam is permitted. support housing and mortgage markets. The tapering of the MBS LSAPs should not be a cause for concern. The Fed’s strong forward guidance combined with the slow, judicious pace of the taper imply that stagnation of the housing market is unlikely. By Carl Hudson, Director, Center for Real Estate Analytics in the Atlanta Fed's research department, and March 5, 2014 in Governmentsponsored enterprises, Loan modifications, Monetary policy | Permalink Frequently Asked Questions Careers GDPNow Inflation Project Jobs Calculator Contact Us A to Z index Follow the Fed Market Probability Tracker Speakers Bureau Publications Disclaimer & Terms of Use Teacher Workshops Wage Growth Tracker Online Privacy Policy Data Privacy Policy Home 1000 Peachtree Street N.E. Atlanta, Georgia 30309 404-498-8500 Careers
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