Time Event Affiliation Synopsis Paper
8:30am-10:00am State Capitol Tour (pick up at 8:30am Doubletree Hotel)
10:30am-11:30am Barney Hartman-Glaser UCLA See Synopsis Collateral constraints, wealth effects, and volatility: Evidence from real estate markets
11:30am-12:45pm Lunch at Memorial Union Terrace
12:45pm-1:45pm Eva Steiner Cornell University See Synopsis After a Hurricane Comes a Rainbow? Evidence from Micro-Level Data on Commercial Real Estate Values
1:45pm-2:45pm Gonzalo Maturana Goizueta Business School See Synopsis Collateral Misreporting in the RMBS Market
2:45pm-3:15pm Refreshment Break
3:15pm-4:15pm Stuart Gabriel UCLA See Synopsis A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession
4:15pm-5:15pm Wei Hung NUS See Synopsis Housing Price, Labor Supply and Household Behaviors: the Dream City Effects

Collateral constraints, wealth effects, and volatility: Evidence from real estate markets

Barney Hartman-Glaser, University of California, Los Angeles

We find that housing return volatility is negatively correlated with income at the zip-code level. We rationalize this finding with a model featuring a collateral constraint that translates income volatility to housing return volatility. Collateral constraints are tighter for lower-income areas, causing higher housing return volatility. We validate this mechanism using variation in wealth induced by lagged housing returns, using crosssectional data on the housing expenditure share, and using state-level non-recourse status to instrument for collateral constraints. Consistent with our model, housing return volatility is negatively correlated with lagged returns, positively correlated with expenditure share, and higher in non-recourse states.

After a Hurricane Comes a Rainbow? Evidence from Micro-Level Data on Commercial Real Estate Values

Eva Steiner, Cornell University

We study how investors price hurricane risk based on micro-level data from the $8 trillion US commercial real estate market. Using Hurricane Sandy as a natural experiment, we find that properties exposed to hurricane risk experience 4 to 10 percent lower price appreciation post-Sandy as compared to their pre-Sandy counterparts matched on hurricane risk. This price effect dissipates over time but, in the cross-section, it extends beyond areas immediately affected by the disaster to similar locations that have not yet experienced a hurricane strike. We also document that the price effect of hurricane risk operates through income, vacancy rates, and risk premia. Lastly, we present evidence for contagion effects from locally important occupiers adversely affected by Sandy to the value of unrelated properties nearby. Our results contribute to the debate about how investors price the exposure of real assets to physical risks associated with climate change, an area of particular concern among regulators and market participants.

Collateral Misreporting in the RMBS Market

Samuel Kruger, McCombs School of Business

Securitized mortgage appraisals routinely target pre-specified valuations, 45% of purchase loan appraisals exactly equal purchase prices, and appraisals virtually never fall below purchase prices. As a result, appraisals exceed automated valuation model (AVM) valuations 60% of the time and are biased upward by an average of 5%. Appraisal bias predicts loan delinquency and RMBS losses and is priced at the loan level through higher interest rates, but it has essentially no impact on RMBS pricing. Selection bias simulations and unfunded loan application appraisals indicate that appraisal bias is intentional, and appraisal bias varies across loan officers, mortgage brokers, and appraisers.

A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession

Stuart Gabriel, University of California, Los Angeles

We investigate the housing and broader economic effects of the 2000s crisis-period California Foreclosure Prevention Laws (CFPLs). The CFPLs encouraged lender mortgage modifications by substantially increasing the pecuniary and time costs of foreclosure. Results show that the CFPLs prevented 124,000 California foreclosures, increased house prices by 6.2 percent, and created $310 billion of housing wealth. Findings further indicate that gains in housing wealth translated into increased durable consumption. Disaggregated estimates reveal that the CFPL house price increases were markedly higher in the hard-hit areas of Southern California. Altogether, the CFPLs were highly effective in mitigating foreclosures and stabilizing housing markets.

Housing Price, Labor Supply and Household Behaviors: the Dream City Effects

Wei Huang, National University of Singapore

Rising house value may increase household’s wealth or relax borrowing constraints. However, higher housing price also raises the cost of living, especially for those who plan to purchase new home in the first time. The growing literature investigates the responses of household consumption to housing price within the city of dwelling or working. In this paper, we document that individuals in smaller or less-developed cities have incentive to move to bigger cities (the “dream cities”). As such, housing price in the dream cities will not only affect the behaviors of local dwellers but also those in the region of nearby cities. This paper investigates the household behaviors in response to the changes in house prices in the local market as well as in their nearby “dream cities” using a micro-level housing market data as well as household consumption and employment data from the US during 1995-2017 and China during 2002-2009. We find that rising house prices in large cities is associated with more labor force participation by young people in both local and nearby small cities. In addition, rising house prices in large cities will also affect social economic behavior of households living in the nearby cities such as wage, income, and consumption.