Essays on housing macroeconomics with heterogeneous agents
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This dissertation investigates two important aspects of the U.S. housing market in the post-Great Recession era. Chapter 1 focuses on the supply side of the housing market. Chapter 2 applies information theory to the mortgage market in order to address a recently noted underwriting condition: the minimum credit score requirement. In Chapter 1, the discussion centers on the recent U.S. housing market, specifically during the 2010s, which is characterized by a rapid increase in house prices alongside sluggish growth in homeownership rates. This trend diverges from earlier housing booms, where increases in both house prices and homeownership rates occur simultaneously and rapidly. Utilizing a macro-housing model with heterogeneous agents, this paper quantitatively establishes that the dynamics of the 2010s housing market can be attributed to two factors: a decrease in the productivity of the residential construction sector and a rapid increase in real median income. Specifically, a negative productivity shock in the residential construction sector leads to a shortage of supply, causing house prices to rise. Simultaneously, a positive income shock stimulates housing demand, further driving up prices. However, the impact of the income shock is not strong enough to counterbalance the negative supply shock from decreasing residential productivity, resulting in a slow recovery of the homeownership rate. In Chapter 2, I analyze the effects of minimum credit score requirements, practices that have become prevalent since the 2008 Great Recession, on the housing and mortgage market. To do that, I construct a quantitative model featuring heterogeneous agents within a macro-housing framework. This model incorporates endogenously and dynamically evolving credit scores, which are based on households' earnings and their decision-making behaviors regarding portfolio choices and debt repayment. Using this model, I conduct counterfactual analyses to examine the consequences of implementing a minimum credit score requirement in the mortgage loan market. The minimum credit score threshold decreases the mortgage default risk, which reduces average mortgage rates. The threshold also decreases the average loan-to-value ratio and the fraction of mortgage owners. Intriguingly, when the threshold is set at the subprime credit score level, the homeownership rate increases by approximately 5 percentage points. Counterfactual experiments and econometric analyses reveal that increases in the homeownership rate are influenced by two key factors: i) the motivation to improve one's credit score, which encourages households to pursue ownership in anticipation of its positive effects on creditworthiness; and ii) the availability of affordable mortgage rates, facilitated by reduced default behavior in an economy with a minimum credit score requirement.
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Ph. D.