UCLA researchers have found that leading up to the Financial Crisis, subprime lenders employed a novel method of influencing the political process. In addition to campaign contributions to key politicians, they gave special treatment to borrowers represented by key congressional leaders.
Keywords: Subprime, Crony Capitalism,
"Direct real estate is the largest asset class without readily available prices. The market capitalization is comparable to that of equities and fixed income, and much larger than that of other alternative asset classes like private equity or hedge funds. Nevertheless, because of the missing price information, it is difficult to estimate the market risk of direct real estate. We propose a simple methodology that uses data on indirect real estate to provide a better understanding of the real estate market risk. Our model uses widely available data and solves the problems posed by the appraisal and transaction-based indices, as well as by the hedonic approach, which are difficult to implement in practice. In particular, we use data on Real Estate Investment Trusts (REITs) returns, determine their factor exposures to other asset classes, and delever these exposures according to REITs’ balance sheets. We find that the existing direct indices understate real estate market risk. Indeed, using data from the UK, the volatility of the real estate asset class that our model entails is almost three times that of appraisal-based indices, and two times that of transaction-based ones. In addition, the correlations to other asset classes are materially different and higher, which is important in a portfolio context. We argue that these findings can have important empirical implications, as they can be useful for practitioners aiming at achieving a simple, transparent and more accurate risk management of their portfolios. Moreover, our findings can help to better understand extreme risks in the real estate market, which have a high impact on the overall economy, as was observed in the recent financial crisis." SSRN
Keywords: Public and Private Real Estate, Real Estate Risk
Keywords: Monetary Policy, Interest Rates, Housing Market, Housing Prices
Keywords: Ireland, Ireland's Property Market
Keywords: US Real Estate Market, Home Ownership, Financial Crisis
..."We are witnesses and participants to a perfect storm of enormous and unstoppable trends triggered by the Internet, by Americans downsizing their lifestyles and increasing their savings, and of dynamic technology displacing capital intensive, asset-oriented investments. As a result of this sweeping sea change, we face a trillion dollar glut of commercial property threatening our communities, businesses, hundreds of small and mid-sized banks, as well as the FDIC."...
Keywords: Technological Change, Creative Destruction, US Real Estate
Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen, Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis, Atlanta Fed, Working Paper 2012-7, May 2012
"We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. We then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly."
Keywords: Financial Crisis, Mortgage, Foreclosure, Asymmetric Information,
Keywords: Chinese Real Estate, Chinese Real Estate Sales, Chinese Real Estate Prices
It hit with the ferocity of an Old Testament plague, wiping out large populations of homeowners in the U.S. Five million of the country's 76 million mortgage holders have lost their homes to foreclosure or lender-ordered short sales since 2006, and an estimated 14 million more owe more on their homes than their properties are currently worth. In all, some $7.4 trillion in homeowners' equity has been destroyed, according to Mark Zandi, chief economist at Moody's Analytics, and more than two million jobs in the home-building industry disappeared. read the article on Barron's
Keywords: US Housing Market, US House Prices
Robert Shiller, Yale University professor and the "Shiller" in the S&P Case-Shiller Home Price Index, discusses whether the housing market has already hit the bottom: "It could turnaround but I don't see any scientific way to be assured."
Keywords: US Real Estate, US Housing Market
The housing market in the south of the United States is among the most attractive asset classes in the world, Marc Faber, the editor of the Gloom Boom & Doom Report, told CNBC on Friday, because while homebuilder stocks had rallied, property prices hadn't moved much. read more on CNBC
Keywords: US Real Estate, US Housing Market
The confidence level could massively improve if people start to realize that the housing bottom is reached. Read an interesting post on CalculatedRisk:
Keywords: US Housing, Housing Bottom
"This paper compares the three recent episodes of boom and bust cycles in asset prices: Japan in the late 1980s to the 1990s; the U.S. since the mid 1990s; and China during the last decade. Although we have not yet seen a collapse of Chinese property prices, the increases so far are comparable to those in the other two episodes and seem to warrant a careful comparative study. I first examine the behavior of asset prices, especially, property prices in the three cases and point out some similarities. I then go on to discuss some backgrounds for the behavior of asset prices. I emphasize the role played by extremely easy monetary policy for generating bubble like asset price behaviors in the three cases. Monetary policy was shown to be easier than standard policy rules like the Taylor rule indicates. The reason for easy monetary policies is investigated. In the U.S. case the monetary authority was concerned over the risk of deflation in the early to mid 2000s. The experiences of Japan and China are quite similar in that the authorities of both countries were seriously concerned with possible deflationary effects of exchange rate appreciation on the economy. Japan let the exchange rate appreciate, while China has resisted a large scale intervention. It is shown, however, that the behavior of real exchange rates has not been that different. Implications of such a finding for the future of the Chinese economy are also discussed."
Keywords: Real Estate, Chinese Real Estate, US Real Estate
Regulatory policy mess cont'd...
Keywords: US Real Estate, US Homeowners, Underwater Homeowners
about individual responsibility..
Government sponsored and bailed out Fannie Mae and Freddie Mac are partying, as Gretchen Morgenson reports:
Nothing wrong with a bit of schmoozing. But it might seem jarring that Freddie, which was rescued by Washington and today exists at the pleasure of taxpayers, paid $80,000 to become a “platinum” sponsor of this shindig. Fannie Mae, that other ward of the state, paid $60,000 to become a “gold” sponsor.
Keep in mind that taxpayers bailed out Fannie and Freddie to the tune of about $150 billion.
Today, Fannie and Freddie are about the only games in mortgage town. Yes, banks make loans, but more often than not they hand them off to one of the two. So it’s a mystery why Fannie and Freddie needed to help foot the bill for the gathering.
Keywords: Fannie, Freddie, US Mortgages
At least early in the financial crisis, the high rate of foreclosures seemed to be due more to households' overreaching than to predatory lending. A disproportionate number of those being foreclosed on were well-educated, well-off and relatively young people. get to the paper
Keywords: Subprime Crisis, Lending, Predatory Lending
read more about these surprising results here:
Robert B. Avery, Kenneth P. Brevoort, The Subprime Crisis: Is Government Housing Policy to Blame? Division of Research and Statistics Board of Governors of the Federal Reserve System, Washington, DC 20551, Aug. 3, 2011
"We find little evidence that either the CRA or the GSE goals played a significant role in
the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders
covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the
threshold tests show no evidence that either program had a significantly negative effect on
CRA = Community Reinvestment Act
GSE = Government Sponsored Enterprise, such as Fannie Mae and Freddie Mac
Keywords: CRA, GSE, Fannie Mae, Freddie Mac, Subprime, US Real Estate Market, US Housing Market
U.S. home prices in July rose for the fourth straight month, according to data released Tuesday, helped by seasonal factors as well as tentative if halting signs of improvement in housing demand. read more on MarketWatch
Keywords: US Real Estate, Case Shiller
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