Patric H. Hendershott

Real User Costs and the Demand for Single-Family Housing

THE 1960s and 1970s were decades of enormous growth in the demand for single-family housing in the United States. The homeownership rate increased between 1960 and 1979 from 62 to 65 percent, and the quality of the average new home sold rose by over 25 percent.1 The increase in the homeownership rate is surprising because the numbers of young and single-person households, which historically have relatively low homeownership rates, grew much more rapidly than older, multiperson households, which have tended to have high homeownership rates.2 The increase in quality is surprising also because rising mortgage rates and relatively rapid increases in house prices doubled the real initial monthly mortgage payment on a house of constant quality. Thus it has been increasingly difficult for households to finance houses with constant quality, much less houses with higher quality.3

Inflation and extraordinary returns on owner-occupied housing: Some implications for capital allocation and productivity growth

Abstract This paper examines the effects of inflation on the allocation of resources between residential and nonresidential uses and the productivity of capital in the U.S. We begin by calculating the realized rates of return on homeowner equity and the contributions of fixed-rate mortgages and differences in relative inflation rates to extraordinary earned real returns. The paper then focuses on the implications of the extraordinary real returns on residential capital for stock prices and on the demand for owner-occupied housing. Proposals for achieving efficient allocation of capital between residential and nonresidential uses are also considered.

Residential Mortgage Markets and the Cost of Mortgage Funds

Early federal housing finance policy appears to have been largely directed at making mortgages more marketable. The creation of FHA, FNMA and FHLMC were designed to homogenize the mortgage instrument and to develop a secondary market for it. Apparently because of a lack of demand for marketability by investors, extensive trading of mortgages has not developed. Nonetheless, the fantastic growth in mortgage pools (as well as the unanticipated growth in FNMA holdings) has increased competition in the supplying of some intermediation functions (mortgage bankers have greatly expanded originations and servicing), has improved interregional flows of mortgage funds, and has given mortgage borrowers a greater access to capital markets generally. The principal result has been a decline in the mortgage rate relative to other market rates, although the inflation-triggered explosion in the demand for mortgage funds in recent years appears to be offsetting the impact of the growth in federal credit broadly defined. Copyright American Real Estate and Urban Economics Association.

Commercial bank asset portfolio behavior in the United States: Evidence of a change in structure

Abstract The development of a short-term borrowing option by a financial industry should lower the liquid-asset share of its portfolio and increase the shares invested in higher-earning, less-liquid, alternative investments. A marked shift in commercial-bank portfolio shares in this direction did, in fact, occur between 1960 and 1970. The development of a borrowing option should also increase the willingness of banks to satisfy temporary extraordinary demands for funds by their customers. Comparison of equation estimates on data from the 1960s and the 1970s is strongly supportive of the increased-willingness hypothesis regarding loans to both businesses and households.

The GNP gap: An indicator of monetary policy?

The purpose of this paper is to specify and calculate an objective indicator of the course of monetary policy. However, in contrast to most evaluations of monetary policy which relate current changes in the money growth r,lte or interest rate to some previous condition, this paper relates actual policies to an ideal policy. Based upon a comparison of actual policies with what tile policy should be, permits a calibration of the actual policy as being iight or easy.

IS–LM AS A DYNAMIC FRAMEWORK

Publisher Summary This chapter presents IS-LM as a dynamic framework. The IS-LM schedules of Hicks have enjoyed unprecedented rule as the framework of modern macro-theory. At present, almost four decades after their introduction, they remain surprisingly useful tools of comparative-static analysis. However, a basic limitation of the schedules is their inability to describe the process or path connecting different points of equilibrium. IS-LM completely suppresses the fundamental financial force propelling the macroeconomic system from one position to another, and it precludes the possibility of disequilibrium in the output market by failing to distinguish between aggregate supply and demand. The chapter discusses the merging of the stock–existing–and flow securities markets when they are not in full equilibrium, and the market and natural rates differ. The process by which the two interest rates are brought together and income is changed is the basic adjustment mechanism. As the IS-LM schedules are highly aggregative market-equilibrium curves, they are not very useful in the analysis of the adjustment. The chapter also describes the events occurring in the money market. The IS-LM schedules cannot provide a framework for dynamic analysis because they implicitly assume that total income supplied and demanded are always equal.

Estimates of Investment Functions and Some Implications for Productivity Growth

My original assignment was first to evaluate Larry Summers’ paper as a description of the current state of the art regarding investment behavior and second to determine the adequacy of the investment sector of Michael Evans’ econometric model (Evans, 1980) in light of Summers’ paper. The late arrival of Larry’s paper forced me to alter my strategy, and it is just as well. Summers’ investment function is a very long-run relationship that does not purport to explain cyclical movements in business investment outlays, while Evans’ relationship is a more traditional analysis of quarterly expenditures.1 Moreover, Summers is concerned with only corporate investment, while Evans deals with all of domestic fixed investment. My revised strategy was to employ two papers recently presented at Brookings Conferences (Hendershott, 1980, and Hendershott and Hu, 1981) as the standard with which to contrast Evans’ work.