Liberty Street Economics
September 10, 2021

Twenty Years After 9/11, New York City’s Resilience Is Tested Once Again

Jason Bram and Joelle Scally

As we mourn the tragic losses of the 9/11 attacks twenty years on, we thought it would be appropriate to re-examine the remarkable resilience New York City’s economy has shown over the years—a resilience that is once again being tested by the ongoing COVID-19 pandemic. In this Liberty Street Economics post, we look at how Lower Manhattan, in particular, has changed since that tragedy on a number of dimensions, and use that as a framework to think about how the city might change as a result of the COVID pandemic. 

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Posted at 11:00 am in New York City, Pandemic | Permalink | Comments (0)
September 8, 2021

If Prices Fall, Mortgage Foreclosures Will Rise

Andrew Haughwout and Belicia Rodriguez

In our previous post, we illustrated the recent extraordinarily strong growth in home prices and explored some of its key spatial patterns. Such price increases remind many of the first decade of the 2000s when home prices reversed, contributing to a broad housing market collapse that led to a wave of foreclosures, a financial crisis, and a prolonged recession. This post explores the risk that such an event could recur if home prices go into reverse now. We find that although the situation looks superficially similar to the brink of the last crisis, there are important differences that are likely to mitigate the risks emanating from the housing sector.

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Posted at 7:02 am in Household Finance, Housing, Mortgages | Permalink | Comments (2)

Does the Rise in Housing Prices Suggest a Housing Bubble?

Andrew Haughwout and Belicia Rodriguez

House prices have risen rapidly during the pandemic, increasing even faster than the pace set before the 2007 financial crisis and subsequent recession. Is there a risk that another dangerous housing bubble is developing? This is a complicated question, and the answer has many components. This post, the first of two, provides a more detailed look at the recent rise in home prices by breaking it down geographically, with a comparison to the pre-2007 bubble. The second post looks at the potential risks to financial stability by comparing the currently outstanding stock of mortgage debt to the period before the financial crisis and projecting defaults should prices decline.

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Posted at 7:00 am in Housing, Mortgages | Permalink | Comments (0)
September 7, 2021

The Housing Boom and the Decline in Mortgage Rates

Haoyang Liu, David Lucca, Dean Parker, and Gabriela Rays-Wahba

During the pandemic, national home values and housing activity soared as mortgage rates declined to historic lows. Under the canonical “user cost” house price model, home values are held to be very sensitive to interest rates, especially at low interest rate levels. A calibration of this model can account for the house price boom with the observed decline in interest rates. But empirically, we find that home values are nowhere near as sensitive to interest rates as the user cost model predicts. This lower sensitivity is also found in prior economic research. Thus, the historical experience suggests that lower interest rates can only account for a tiny fraction of the pandemic house price boom. Instead, we find more scope for lower interest rates to explain the rise in housing activity, both sales and construction.

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Posted at 7:00 am in Housing, Macroecon, Monetary Policy, Mortgages, Pandemic | Permalink | Comments (0)
September 1, 2021

Going with the Flow: Changes in Banks’ Business Model and Performance Implications

Nicola Cetorelli, Michael G. Jacobides, and Samuel Stern

Does the performance of banks improve or worsen when banks enter into new business activities? And does it matter which activities a bank expands into, or retreats from, and when that decision is made? These important questions have remained unaddressed due to a lack of data. In a recent publication, we used a unique data set detailing the organizational structure of the entire population of U.S. bank holding companies (BHCs). In this post, we draw on that research to show that while scope expansion on average hurts performance, entering into activities that are highly synergistic with core banking at a given point in time yields net performance benefits.

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Posted at 7:00 am in Bank Capital, Financial Institutions | Permalink | Comments (1)

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Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

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