Financial Update (Third Quarter 2005)



FEATURES

Pat Barron on
Payment System
Changes

Overdraft Protection
Information Changes

Subprime Mortgagees
May Face More Risk

Atlanta Fed Hosts
Housing Conference

Atlanta Fed Unveils
Americas Center
Site

Fed Governor
Addresses Basel II
Accords

Fed Alters
Banks’ Calculations
of TRUPS

International Banking
Journal Debuts

Fed Makes Cash
Operation Changes

Innovating Small
Firms’ Credit
Examinations

New Guidelines
For Home Equity
Lenders

DEPARTMENTS

Data Bank

Circular Letters

STAFF

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Conference Explores Interaction Between Housing and Economy

Because 69.1 percent of American households own a home, housing services and residential investment account for a substantial share of the nation’s economy—16.2 percent of gross domestic product, according to data from the Bureau of Economic Analysis. Correspondingly, housing finance and housing policy exert a growing influence on the nation’s economy.

The Federal Reserve Bank of Atlanta’s May conference, “Housing, Mortgage Finance, and the Macroeconomy,” brought together economists and housing experts to examine how housing finance and policy affect the larger economy and how the larger economy affects housing.

Old tools, new uses
Several conference speakers discussed the increasing use of macroeconomic models to study those dynamics. While macro models have long been employed to study topics such as Social Security, Atlanta Fed economist Karsten Jeske noted that economists have more recently begun using such models to analyze homeowner demographics and the interactions of home prices, mortgage interest rates, and government housing policies.

Related
Summary of Fed Chair Alan Greenspan’s conference remarks
Full text of Greenspan’s speech
Conference papers and presentations

Evaluating valuation
Another of the conference’s primary topics involved analysis of long-term changes in housing prices and whether housing has been fairly valued, undervalued, or overvalued. One way to gauge whether house prices have risen beyond what the economic fundamentals support is to determine how much home prices have exceeded corresponding rental prices. If a home’s perceived investment value moves too far beyond its value as a place to live, it may be overvalued, speakers noted. They concluded that housing price increases have been based on fundamentals and that the increase in home values does not suggest a “bubble.”

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