Housing and the
Download
1 / 23

Outline for our time today - PowerPoint PPT Presentation


  • 55 Views
  • Uploaded on

Housing and the macroeconomy Jeff Fuhrer, EVP and senior policy advisor Federal Reserve Bank of Boston N ovember 28, 2012. Outline for our time today. Recap of the housing crisis, and review of a few subprime myths and facts Quick look at the current state of the housing markets

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Outline for our time today' - storm


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Outline for our time today

Housing and the macroeconomyJeff Fuhrer, EVP and senior policy advisorFederal Reserve Bank of BostonNovember 28, 2012


Outline for our time today
Outline for our time today

  • Recap of the housing crisis, and review of a few subprime myths and facts

  • Quick look at the current state of the housing markets

  • Review the macroeconomic backdrop to housing

  • Primer on recent Federal Reserve actions


Subprime facts and myths why an lmi mortgage program might make sense
Subprime “facts” and mythsWhy an LMI mortgage program might make sense

  • The subprime population is too high risk, and should not get mortgages

    • Historical default rates for subprime about 2% in US

  • Subprime mortgages are “exotic”: Option-ARMs, Neg-Ams, IO, etc.—we should stay away from such predatory products

    • NO: In fact, VERY FEW of subprimes were this type of mortgage

    • Almost all were 2/28 or 3/27 ARMS

  • OK, but that’s why they defaulted—the ARM resets!

    • NO: Little or no evidence of any reset effect

    • (In fact, many reset to lower interest rates)

  • Securitization was a bad idea—Subprime MBS securities all lost huge amounts, and were a dumb idea

    • NO: In fact, losses on AAA “vanilla” MBS < 10%


Default rates
Default rates

Normal times: subprime rates are higher, but manageable

Crisis times:

Everyone is

in a mess

Source: Mortgage Bankers Association, Haver Analytics


Resets not the problem
Resets—not the problem

  • No link between reset date and default

  • Defaults increased in 2007/8—because house prices fell, unemployment rose

  • Thus the rapid increase in prime defaults as well (not shown)

Source: Foote and Willen (2012)


Did securitization work a look at mbs performance
Did securitization work?A look at MBS performance

Losses much worse on CDOs

Losses less than 10% on AAA

Why: Credit protection worked

Private label RMBS

Foote and Willen (2012)


How is housing doing now
How is housing doing now?

  • Better—permits are rising, inventories are lean

Source: Census Bureau, Haver Analytics


How is housing doing now1
How is housing doing now?

  • Prices are flattening or turning up modestly

Source: FHFA, Core Logic, Haver Analytics


How is housing doing now2
How is housing doing now?

  • Vacancies have improved nationwide (less so in VT, NH)

  • Still a lot of REO/property held off the market

Source: Census Bureau, Haver Analytics



We have to start with labor markets
We have to start with labor markets

Source: Bureau of Labor Statistics, Haver Analytics


Why is unemployment so stubbornly high it s not job loss these days
Why is unemployment so stubbornly high?It’s not job loss these days

Recession ends

Source: Bureau of Labor Statistics, Haver Analytics


It s the failure to create new jobs
It’s the failure to create new jobs

Recession ends

Source: Bureau of Labor Statistics, Haver Analytics


This also explains the remarkable length of unemployment spells
This also explains the remarkable length of unemployment spells

Source: Bureau of Labor Statistics, Haver Analytics


Supports and drags contribution of components to growth versus historical average
Supports and Drags spellsContribution of components to growth versus historical average

Source: Bureau of Economic Analysis, Haver Analytics


Supports and drags contribution of components to growth versus historical average1
Supports and Drags spellsContribution of components to growth versus historical average

  • Consumer spending has been fair to middling, given overall strength

  • And you know about housing!

Source: Bureau of Economic Analysis, Haver Analytics


The pattern of support is switching about now
The pattern of support is switching about now spells

Source: Census Bureau, Michigan Survey Research Center, Federal Reserve Board, Haver Analytics


Why this shift
Why this shift? spells

  • Household wealth has improved a bit (housing values, stock market)

  • The “fiscal cliff” matters less to households?

  • But it matters to businesses

  • The global slowdown affects export-dependent businesses, consumers less so


Inflation remains well contained
Inflation remains well-contained spells

Source: Bureau of Economic Analysis, Haver Analytics


Key risks
Key Risks spells

Source: Wall Street Journal, Haver Analytics


Federal reserve actions extensions of conventional policy
Federal Reserve Actions: spellsExtensions of conventional policy

Congressionally-mandated goals

(Dual Mandate)

Price stability

(low and stable inflation)

Maximum sustainable employment

Primary policy instrument

Alternative Policy Instruments

Federal Funds rate

(overnight bank rate)

QE

“Forward Guidance”

Long-term interest rates, stock prices, exchange rate

X


How does qe work
How does QE work? spells

  • We buy long-term assets

    • Removes them from circulation in private markets

    • But private agents still want them

    • So they’re willing to accept them for a lower yield

  • Bottom line: we’re trying to reduce long-term rates

Private Markets’

Securities

Fed’s Securities


In summary
In summary spells

  • The recovery has been frustratingly slow

  • Our tools to address weakness are somewhat limited

  • But we are doing what we can

  • Recently, we have paid particular attention to employment shortfalls

    • Not because we don’t care about inflation

    • But because the gap between the goal for employment is so large