Housing Market Crisis Research Articles

Risk Assessment for the Housing Market in Mexico

The lingering experience of the U.S. housing market crisis has underlined importance in seeking new markets for the companies involved in housing construction. However, expansion to new markets requires a deliberate strategic plan to efficiently adjust to a new business environment. Identifying potential opportunities and threats may help to devise plans and spot areas in which knowledge transfer of the foreign market is essential. Mexico enjoys a growing economy and an accelerated growth of its population, which increases the need in the housing market. It is therefore an attractive market for the U.S. housing industry considering the existing channels of trade between the two countries. Therefore, a study was conducted with the focus on U.S. construction firms and their challenges upon entering the Mexican housing market. The study was defined based on the International Construction Risk Assessment Model-1 (ICRAM-1) that was developed for assessment of potential risks involved in expansion into new construction markets at the international arena. To facilitate decision making, the study identifies high-risk indicators for the U.S. firms and mitigation strategies that may assist those firms to minimize risks involved in the Mexican housing market. Finally, high-risk indicators suggested by the model such as land planning, societal conflicts, or laws versus practices have been discussed under their related topic to illustrate knowledge areas critical for this specific market expansion. DOI: 10.1061/ (ASCE)ME.1943-5479.0000128. © 2013 American Society of Civil Engineers.

Lending in the Modern Era: Does Racial Composition of Neighborhoods Matter When Individuals Seek Home Financing? A Pilot Study in New England

This article explores the relationship between racial composition of neighborhoods and approval and origination of mortgages. It measures independent neighborhood effects, above and beyond applicant race effects preceding the recent housing market crisis for rental and owner–occupied homes. Mortgage applications are selected from the dozen most populated metropolitan areas in New England. Applications are linked to corresponding neighborhood data and generalized linear mixed modeling is applied. Data include prehousing market crash Housing Mortgage Disclosure Act data matched to American Community Survey 5–year data for over one million applications. Findings indicate, although controlling for income, gender, and race of the applicant, poverty and tenure, and additional socioeconomic variables, neighborhood racial composition has a statistically significant effect on whether mortgages are approved and originated. Minority presence is correlated with a negative effect on mortgage origination regardless of race of the individual loan applicant. More specifically, whites’ applications are also turned down in minority neighborhoods, especially black neighborhoods.

Municipal fiscal stress and the use of Tax Increment Financing (TIF)

The Lead Paper in this policy and practice discussion begins by describing the current fiscal conditions of American cities and the constraints they face in financing both operation and capital expenditures. In particular, it comments on the effects of fiscal stress, tax limits, and state-imposed mandates. It then closely examines the use of tax increment financing (TIF) - a technique that is used by sub-state localities in all but one of the US states. After describing the steps in implementing a TIF district, the article examines the effects of its use, including its impact on redevelopment, new economic development, and on other jurisdictions. Fiscal stress Many American cities are still struggling with the effects of the latest economic recession, which lasted from December 2007 until June 2009 (Hoene and Pagano, 2010). The long downturn became a litmus test of the health of local budgets and revealed important structural and institutional settings in which city governments make revenue and expenditure decisions. A vast majority of American cities rely on property taxes, local sales taxes, user fees and, less often, on income taxes for their budget revenues. While income taxation is typically the federal and state prerogative in the US, some jurisdictions that do not enjoy a rich property or sales tax base use local income taxes as a revenue source. Added to the own-source revenues are intergovernmental transfers, which largely come to localities from states. Intergovernmental transfers are often earmarked for specific programmes, although some state aid goes directly into the General Fund. In 2008, state aid to local governments amounted to 30.5 per cent of total local revenues while federal aid was at the level of 3.8 per cent (calculated by authors from the US Census Bureau data). In 2009, the federal government implemented the American Recovery and Reinvestment Act (ARRA) and disbursed billions of dollars to local education programmes, transportation and construction projects. These programmes and projects would not have been undertaken or would not have withstood the economic recession in the absence of the federal support. The ARRA fund disbursement ended in 2011. The recession demonstrated that changes in economic conditions weaken all major sources of municipal own-source revenue. Usually, income elastic sources, such as sales tax and user fees and charges, are the first to reflect an economic recession. They generate smaller revenue collections as soon as the consumer confidence weakens and income growth stalls. The latest recession, for example, led to a free fall of sales tax revenue for months and resulted in sustained fiscal stress. Revenue from city sales taxes declined by 6.6 per cent from 2008 to 2009 and were forecasted to decline by an additional 4.9 per cent in 2010 (Hoene and Pagano, 2010). Property tax collections, a traditionally stable local revenue source, have also not been immune to the negative effects of the economic downturn. The American housing market crisis triggered a decline in property market values. The latter gradually led to a decline in property assessment values, which in turn affected property tax collections. The trickle-down effect of the housing market crisis may take from 18 months to 2 years before it is reflected in local budgets (Hoene and Pagano, 2010). Unlike sales tax and user fee collections, property tax revenues slowly bounce back to the pre-crisis level when the local economy fully recovers. Structural changes that have taken place in the housing market will not permit property values to rise to the pre-crisis level for many years. Insufficient property tax collections mean that local governments need to look for alternative sources of revenue or raise property tax rates or assessments to balance their budgets. Not many governments freely enjoy the latter option today. Some cities perform assessment valuations biannually and are hesitant, for political reasons, to raise property tax rates. …

Discussion

Discussion

Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis

We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the share of purchases, and subsequently delinquencies, by real estate investors. In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. Our findings have important implications for policies designed to address the consequences and recurrence of housing market bubbles.

Homeownership and Neighborhood Satisfaction among Low- and Moderate-Income Households

ABSTRACT:Most research on homeownership is conducted on nationally representative samples of homeowners and fails to isolate the unique experience of low- and moderate-income (LMI) homeowners. Given the interest of policymakers in promoting homeownership among LMI households over the past 20 years, along with the apparent role played by risky borrowers—many of whom are low-income—in the current housing market crisis, it is important to evaluate both economic and social outcomes for this subgroup of homeowners. Using a matched set of LMI owners and renters in the 2007 Community Advantage Program (CAP) panel, we assess the effect of homeownership on neighborhood satisfaction. By including various individual and neighborhood characteristics as covariates, we employ multilevel modeling and propensity score matching to address the nested structure of the data and endogeneity issues. Findings indicate that homeownership is an important predictor of neighborhood satisfaction among LMI households, even when controlling for a host of socioeconomic, demographic, and neighborhood characteristics. This may suggest that homeownership can serve as a viable way to improve neighborhood satisfaction among LMI households. This is important as neighborhood satisfaction is highly associated with overall quality of life.

The sustainability of low-income homeownership: the incidence of unexpected costs and needed repairs among low-income home buyers

Until the recent housing market crisis, the United States was producing first-time, low-income homeowners at an unprecedented rate. In a longitudinal study of low-income renters participating in a multi-site homeownership education program, we examine the ability of low-income homebuyers to pay housing related costs after home purchase, including maintenance or repairs costs. After less than two years of ownership, we find the sustainability of low-income homeownership in jeopardy for sizeable portion of home buyers. About half of the more than 350 new home owners surveyed face unexpected costs, and about a third confront home repairs they cannot afford. More than half carry greater non-housing debt, and about a quarter were 30 days late or more in debt repayment. The findings raise concerns about the long term sustainability of low-income homeownership and emphasize the importance of requiring effective pre-purchase services and effective and ongoing post-purchase counseling.

Impact of the US Credit Crunch and Housing Market Crisis on China

Similarities between the US, the UK and the Chinese housing markets, including the movements of interest rates and house prices, and the exposure of some Chinese banks to the US mortgage securitization market, have triggered concern about whether China could experience a US-style credit and housing market crisis. Significant differences between China and Western economies make that unlikely in the near future. China's booming house market has been supported by fast economic growth, rapid urbanization and high domestic savings. Chinese banks have also been less exposed to mortgage defaults than their Western counterparts. However, the relative underdevelopment of the financial system—credit monitoring and asset securitization—may expose China to domestic mortgage lending-related crises.

Monetary Policy and Asset Prices

The housing market crisis is the latest reminder that asset prices can and do run wild at rates capable of negative effects on real economic activity. Not surprisingly, this has reinvigorated debate over whether central banks should respond to asset price bubbles.

"The Impact Of Global Crisis On Romania’s Economic Development "

The world is passing through the most difficult economic and financial crisis in the history, which severely affects its stability in the long term, risking an uncontrolled slide into chaos and uncertainty. The housing market crisis emerged in the United States in July 2007, due to multiple interferences generated by the globalization, has spread to other regions, triggering the world economy into recession. The study is trying to present the main causes and characteristics of the crisis, with special attention to its impact on Romania, which has witnessed a severe economic downturn in the first half of 2009, registering a sharp decline in industrial production, construction sector, exports and also in the lending activity. To deal with high budget deficit and liquidity pressures in the short term a financing agreement with international organizations has been concluded. But, in the long term, the external debt burden is increasing, the sustainable development of Romania facing new risks arising from both the global crisis and the internal vulnerabilities.

Impact of the US Credit Crunch and Housing Market Crisis on China

There are many similarities between the US, the UK and the Chinese housing markets, including the movements of interest rates and house prices. Some Chinese banks, especially the Bank of China, have been exposed to the US mortgage securitization market. These have triggered a serious concern as to whether the US credit crunch and housing market crisis may be replicated in China. This paper shows that there are some significant differences between China and the West, especially the US and the UK. Compared with the US and other western industrialized economies, the booming house market in China has been supported by fast economic growth, rapid urbanization and high domestic savings. In addition, Chinese banks are less exposed to mortgage defaults than their western counterparts because house buyers are mainly urban and high income residents who are required to have high down payments. These Sino-Western economic and social differences suggest that the US credit crunch and housing market crisis may have some negative impacts on Chinese commercial banks and the overall economy but are unlikely to cause a similar financial and housing crisis in China despite the current struggling Chinese stock markets and a slowdown of house price growth.

Da Agua Pro Vinho: How the Baby Boomers Enabled the Creation of a Secondary Mortgage Market in Brazil

This article attempts to provide an outline of the securitization process as it emerged in the U.S. and a description of the unique role it has played in Brazil (with particular attention to the enactment of the SFI). An overview of the securitization process is presented in Part II. How does it work? And how did the process solve a pending crisis of the U.S. housing market in the 1970s? Part III outlines the legal and regulatory requirements for a securitized transaction. What are the basic components it must have for proper functioning? Part IV provides economic arguments for securitization, exploring arguments from efficiency and how the process adds value to an individual firm by optimizing its capital structure. Part IV(B) looks at how the securitization of mortgage loans may facilitate overall economic and financial development in emerging markets by turning illiquid assets into freely tradable market instruments, freeing up the inherent wealth value in land. Part V describes securitization's role in Brazil. The article presents an explanation of how a process initially created as a response to the demands of the U.S. housing market wound up in Latin America in Part V(A). Part V(B) provides a historical account of the political developments surrounding Brazil's housing market crisis in the 1980s that led to the passage of Law 9514, laying the legal and regulatory groundwork for the development of a secondary mortgage market. Part V(C)&(D), respectively, provide a statutory analysis of Law 9514 (with particular emphasis on companhias securitizadoras and the alienacao fiduciario) and outline the judicial hurdles facing its enforcement. How has Brazil's socially-oriented judiciary responded to the neoliberal move towards securitized transactions - ie., market dependency - and what effect has that had on the secondary mortgage market? Part VI offers some conclusory remarks and a brief prognosis on the future of securitization in Brazil.