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International Monetary Fund, “The Global House Price Boom” (2004). IMF researchers compare house-price volatility over the period 1971–2003 with the proportion of fixed-rate lending in 18 developed countries. They find that countries with more fixed-rate lending have lower house-price volatility. The authors also suggest that changes in house prices affect consum- ers’ credit and their ability to borrow. In this way, house prices are linked with economic activity through consumer spending.

David Miles, “The U.K. Mortgage Market: Taking a Longer Term View” (2003 and 2004). Professor Miles prepared a study of the U.K. mortgage market at the request of the Treasury, which included an interim report and a final report. The interim report addresses why there is so little long-term fixed rate lending in the U.K.. Miles observes that U.K. mortgages are mar- keted with substantial emphasis on the initial rate, rather than the expected cost of the loan over longer periods. He also notes that home prices are “unusually sensitive to movements in short-term rates.” The final report concludes that the U.K. housing market and overall economy would benefit from greater usage of long-term, fixed-rate lending as apposed to the adjustable- rate mortgages (or very short-term balloons) that characterize the U.K. mortgage market. Miles finds that house prices are more sensitive to inter- est-rate movements in the U.K. than in the U.S. or the Netherlands. He also finds that countries with more fixed-rate mortgage lending have less house-price volatility and more macroeconomic stability over time.

Revisiting the Net Benefits of Freddie Mac and Fannie Mae

Joe Peek and James A. Wilcox, “Secondary Mortgage Markets, GSEs, and the Changing Cyclicality of Mortgage Flows” (2004). Peek and Wilcox find that total outstanding residential mortgage balances in the U.S. have become less pro-cyclical since the 1970s. The decline in mortgage balances was larger in the recessions of 1973–75 and 1981–82 than in the recession beginning in 1990. In addition, Peek and Wilcox find that total intermediation (the GSEs’ holdings of MBS and mortgages in portfolio) increased during recessions. Thus, the counter-cyclical behavior of the GSEs, combined with the increas- ing role of the GSEs, has likely dampened the amount of cyclical fluctuation in funds flowing into mortgage markets.

Joe Peek and James A. Wilcox, “Housing, Credit Constraints, and Macro Stability: The Secondary Mortgage Market and Reduced Cyclicality of Residential Investment” (2006). Peek and Wilcox present a statistical study of the cyclical behavior of the U.S. economy between 1968 and 2004. They find that the impact of interest rates and aggregate income on housing expenditures declined as the secondary mort- gage market expanded. They conclude that by tempering the volatility of residential investment, growth in the secondary market for residential mortgages has contributed importantly to the stability in the U.S. economy.

Social Benefits

Brent W. Ambrose and Richard J. Buttimer Jr., “GSE Impact on Rural Mortgage Mar- kets” (2005). The authors find that the GSEs are responsible for improving rural area access to mortgage funds. Although they do not address

Appendix: Recent Literature



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