Wednesday 2014-12-03

House of Debt by Atif Mian and Amir Sufi

This is a good discussion of the issues regarding the mid-2000s housing bubble. It goes a bit off-track at the end with their policy recommendation, as they do not fully weigh out the pros and the cons.

Still, it's the most cogent mainstream discussion of these issues that I've seen.

Ethel Cochran, an elderly woman living in Detroit, already owned her home when the mortgage-credit boom began. She had bought her home with an $8,000 mortgage in 1982, and stayed in the same home for the next twenty-five years. Between 2001 and 2007, she refinanced her mortgage five times, ultimately having a mortgage in 2007 of $116,000.
Policy makers have consistently viewed assistance to indebted households as a zero-sum game: helping home owners means hurting banks, and hurting banks would be the worst thing for the economy.
it is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.
the United States witnessed a dramatic rise in household debt between 2000 and 2007 the total amount doubled in these seven years to $14 trillion, and the household debt-to-income ratio skyrocketed from 1.4 to 2.1.
From 2002 to 2005, the expansion of mortgage credit to neighborhoods on the west side of Detroit was unprecedented. These areas were filled with marginal borrowers getting mortgages. But when we look at income, a striking pattern emerges: these same zip codes were actually seeing lower nominal income growth average income fell by almost 1 percent in these zip codes.