Assessing the amenity value of green space is important to urban revitalization. This paper examines the impact of vacant lots greened by the Pennsylvania Horticultural Society in Philadelphia for the period of 2007-2017 on housing prices. The paper uses a quasi-experimental design to estimate the effect of greening vacant land on the sale prices of nearby houses. We find a positive treatment effect of greening vacant space, with sale prices increasing by 4.3% (which varies by neighborhood income) and show that greening vacant land can eliminate the negative impact of vacant land on housing prices. We also implement and demonstrate the importance of sample selection bias adjustment for the identification of the effect of greening on housing prices.
{"title":"Amenity Value of Green Space: Evidence from Philadelphia","authors":"Desen Lin, Shane T. Jensen, Susan M. Wachter","doi":"10.2139/ssrn.3899624","DOIUrl":"https://doi.org/10.2139/ssrn.3899624","url":null,"abstract":"Assessing the amenity value of green space is important to urban revitalization. This paper examines the impact of vacant lots greened by the Pennsylvania Horticultural Society in Philadelphia for the period of 2007-2017 on housing prices. The paper uses a quasi-experimental design to estimate the effect of greening vacant land on the sale prices of nearby houses. We find a positive treatment effect of greening vacant space, with sale prices increasing by 4.3% (which varies by neighborhood income) and show that greening vacant land can eliminate the negative impact of vacant land on housing prices. We also implement and demonstrate the importance of sample selection bias adjustment for the identification of the effect of greening on housing prices.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76144844","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the capitalization effect of intergovernmental fiscal transfers from central to local government into house prices. The extent to which unconditional fiscal transfers to municipalities in the Tokyo metropolitan area are attributed to land prices will be examined using the event of a drop in the size amount of fiscal transfers following the fiscal reform in the early 2000s. The result shows that the drop in the transfer has decreased the land prices in the municipalities. Furthermore, a reduction of one unit in the per capita grant decreased the value of housing area per capita by one or more units, even if the real discount rate was estimated to be as low as 2%. We can conclude that the fiscal transfer reform focused on in this paper had a more negative impact on the benefits of residing in a municipality in the area than the amount of the reduction.
{"title":"Capitalization of Local Government Grants on Land Values: Evidence from Tokyo Metropolitan Area, Japan","authors":"Takafumi J. Suzuki","doi":"10.2139/ssrn.3850086","DOIUrl":"https://doi.org/10.2139/ssrn.3850086","url":null,"abstract":"This study investigates the capitalization effect of intergovernmental fiscal transfers from central to local government into house prices. The extent to which unconditional fiscal transfers to municipalities in the Tokyo metropolitan area are attributed to land prices will be examined using the event of a drop in the size amount of fiscal transfers following the fiscal reform in the early 2000s. The result shows that the drop in the transfer has decreased the land prices in the municipalities. Furthermore, a reduction of one unit in the per capita grant decreased the value of housing area per capita by one or more units, even if the real discount rate was estimated to be as low as 2%. We can conclude that the fiscal transfer reform focused on in this paper had a more negative impact on the benefits of residing in a municipality in the area than the amount of the reduction.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82947366","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates the effect of the governmental announcement of demand restrictions and supply of new homes on house prices and investigates how the timing of policy implementation affects the impact of these policies. Empirically, we show that demand restrictions paired with a moderate or moderately high level of new home supply lead to a decline in house prices, whereas implementing only either demand or supply policies could result in a further increase. A critical observation from our study is that a rapid rise in house prices often self-reinforces its upward momentum, which ultimately accelerates the rate of increase in price over time. Our event study model shows that governmental interventions in the housing market have a significant impact in breaking that trend. In particular, implementing demand and supply policies simultaneously created a greater downward pressure on house prices in areas with a higher level of speculative investments, suggesting effectiveness of using both types of policies in reducing speculation. As an excessive increase in house prices compared to income growth drives the income gap between homeowners and non-owners, our study results contribute to reducing income inequality by better informing policymakers of the effective policy tools from a perspective of the timing of policy implementation.
{"title":"Curbing the Rising House Prices: The Effect of Demand and Supply Policies on House Prices from a Perspective of the Timing of Policy Implementation","authors":"Hoon-Tark Park","doi":"10.2139/ssrn.3872006","DOIUrl":"https://doi.org/10.2139/ssrn.3872006","url":null,"abstract":"This paper estimates the effect of the governmental announcement of demand restrictions and supply of new homes on house prices and investigates how the timing of policy implementation affects the impact of these policies. Empirically, we show that demand restrictions paired with a moderate or moderately high level of new home supply lead to a decline in house prices, whereas implementing only either demand or supply policies could result in a further increase. A critical observation from our study is that a rapid rise in house prices often self-reinforces its upward momentum, which ultimately accelerates the rate of increase in price over time. Our event study model shows that governmental interventions in the housing market have a significant impact in breaking that trend. In particular, implementing demand and supply policies simultaneously created a greater downward pressure on house prices in areas with a higher level of speculative investments, suggesting effectiveness of using both types of policies in reducing speculation. As an excessive increase in house prices compared to income growth drives the income gap between homeowners and non-owners, our study results contribute to reducing income inequality by better informing policymakers of the effective policy tools from a perspective of the timing of policy implementation.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79280282","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-05-06DOI: 10.1108/IJHMA-01-2021-0005
Edward Chung Yim Yiu, K. Cheung
Article Classification: Research Paper (Construction or testing of a model or framework).
Purpose: The repeat sales house price index has been widely used to measure house price movements on the assumption that the quality of properties does not change over time. This study aims to develop a novel improvement-value adjusted repeat sales (IVARS) house price index to remedy the bias due to the constant-quality assumption.
Design/Methodology/Approach: This study compares the performance of the IVARS model with the traditional hedonic price model and the repeat sales model by using half a million repeated sales pairs of housing transactions in the Auckland Region of New Zealand, and by a simulation approach.
Findings: The results demonstrate that using the information on improvement values from mass appraisal can significantly mitigate the time-varying attribute bias. Simulation analysis further reveals that if the improvement work done is not considered, the repeat sales house price index may be overestimated by 2.7% per annum. The more quality enhancement a property has, the more likely it is that the property will be resold.
Originality: The novel IVARS index can help gauge house price movements with housing quality changes.
Practical Implications: This novel index may have the potential to enable the inclusion of home condition reporting in property value assessments prior to listing open market sales.
{"title":"A Housing Price Index with the Improvement-Value Adjusted Repeated-Sales (IVARS) Method","authors":"Edward Chung Yim Yiu, K. Cheung","doi":"10.1108/IJHMA-01-2021-0005","DOIUrl":"https://doi.org/10.1108/IJHMA-01-2021-0005","url":null,"abstract":"Article Classification: Research Paper (Construction or testing of a model or framework).<br><br>Purpose: The repeat sales house price index has been widely used to measure house price movements on the assumption that the quality of properties does not change over time. This study aims to develop a novel improvement-value adjusted repeat sales (IVARS) house price index to remedy the bias due to the constant-quality assumption.<br><br>Design/Methodology/Approach: This study compares the performance of the IVARS model with the traditional hedonic price model and the repeat sales model by using half a million repeated sales pairs of housing transactions in the Auckland Region of New Zealand, and by a simulation approach.<br><br>Findings: The results demonstrate that using the information on improvement values from mass appraisal can significantly mitigate the time-varying attribute bias. Simulation analysis further reveals that if the improvement work done is not considered, the repeat sales house price index may be overestimated by 2.7% per annum. The more quality enhancement a property has, the more likely it is that the property will be resold.<br><br>Originality: The novel IVARS index can help gauge house price movements with housing quality changes.<br><br>Practical Implications: This novel index may have the potential to enable the inclusion of home condition reporting in property value assessments prior to listing open market sales.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77550821","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
An oversupply of housing, as a result of a building boom after the turn of the century, is commonly cited as a key cause of the Great Recession and the slow recovery from that recession. Using both national data and data for individual metropolitan areas, such as housing permits, residential investment, and population trends, I show that the evidence for systematic overbuilding is weak. New building was primarily meeting sustainable demand for shelter before the crisis. Building had increased where local regions with inadequate supply had created pent up demand and in regions where population was increasing as households were forced to move away from regions with inadequate housing supply. Elevated vacancy rates, where they developed, are best explained by unexpected declines in population growth. Declining population trends had already become problematic by 2007 in cities where high vacancies and collapsing prices were the worst after the recession. Yet, in 2007 and throughout the crisis, Federal Reserve officials acted explicitly on the perception that excess supply was an impediment to a recovery in residential investment, construction employment, and general economic stability. In short, an incorrect perception of housing oversupply rather than actual oversupply fueled the deep recession and slow recovery by prompting the Federal Reserve to accept or induce negative trends in economic activity.
{"title":"Build More Houses: How an Incorrect Perception of Housing Supply Fueled the Great Recession and Slowed Recovery","authors":"Kevin Erdmann","doi":"10.2139/ssrn.3840450","DOIUrl":"https://doi.org/10.2139/ssrn.3840450","url":null,"abstract":"An oversupply of housing, as a result of a building boom after the turn of the century, is commonly cited as a key cause of the Great Recession and the slow recovery from that recession. Using both national data and data for individual metropolitan areas, such as housing permits, residential investment, and population trends, I show that the evidence for systematic overbuilding is weak. New building was primarily meeting sustainable demand for shelter before the crisis. Building had increased where local regions with inadequate supply had created pent up demand and in regions where population was increasing as households were forced to move away from regions with inadequate housing supply. Elevated vacancy rates, where they developed, are best explained by unexpected declines in population growth. Declining population trends had already become problematic by 2007 in cities where high vacancies and collapsing prices were the worst after the recession. Yet, in 2007 and throughout the crisis, Federal Reserve officials acted explicitly on the perception that excess supply was an impediment to a recovery in residential investment, construction employment, and general economic stability. In short, an incorrect perception of housing oversupply rather than actual oversupply fueled the deep recession and slow recovery by prompting the Federal Reserve to accept or induce negative trends in economic activity.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81770407","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The mortgage market has historically been plagued by racial discrimination, and recent data show ongoing disparities in the terms offered to minority borrowers by traditional lenders. The mortgage market has changed rapidly in the past decade, however, due to the rise of technology-based (FinTech) lenders. In this paper, I show that FinTech lenders show little to no gap in the terms provided to Black and Hispanic borrowers after adjusting for GSE credit-risk pricing determinants and loan size. This fact is shown using proprietary data on borrowers to better study racial bias and FinTech loans. The paper further shows that, in a matched analysis of observationally similar Black and Hispanic and non-Black or Hispanic borrowers, FinTech lenders provide statistically indistinguishable terms to the two groups. This stands in sharp contrast to the large discrepancies found under identical tests for traditional lenders. This matched analysis, wherein borrowers with similar characteristics such as income and age are compared, is supported by an analysis of preference and shopping heterogeneity in the National Survey of Mortgage Originations. Finally, I show that FinTech penetration in a region had consequences on legacy lender terms as well. Greater FinTech penetration in a zip code is associated with smaller discrepancies even among legacy lenders.
{"title":"The Impact of FinTech on Discrimination in Mortgage Lending","authors":"D. Shoag","doi":"10.2139/ssrn.3840529","DOIUrl":"https://doi.org/10.2139/ssrn.3840529","url":null,"abstract":"The mortgage market has historically been plagued by racial discrimination, and recent data show ongoing disparities in the terms offered to minority borrowers by traditional lenders. The mortgage market has changed rapidly in the past decade, however, due to the rise of technology-based (FinTech) lenders. In this paper, I show that FinTech lenders show little to no gap in the terms provided to Black and Hispanic borrowers after adjusting for GSE credit-risk pricing determinants and loan size. This fact is shown using proprietary data on borrowers to better study racial bias and FinTech loans. The paper further shows that, in a matched analysis of observationally similar Black and Hispanic and non-Black or Hispanic borrowers, FinTech lenders provide statistically indistinguishable terms to the two groups. This stands in sharp contrast to the large discrepancies found under identical tests for traditional lenders. This matched analysis, wherein borrowers with similar characteristics such as income and age are compared, is supported by an analysis of preference and shopping heterogeneity in the National Survey of Mortgage Originations. Finally, I show that FinTech penetration in a region had consequences on legacy lender terms as well. Greater FinTech penetration in a zip code is associated with smaller discrepancies even among legacy lenders.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90060759","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we examine how the enforcement and collapse of a rumor affect regional housing markets in China. Specifically, we trace the rumor that Yanjiao and Dachang, two counties in Hebei province, were to be merged into Tongzhou, a county of Beijing, and quantify the bust of housing prices when the rumor collapses. Using a difference-in-difference approach in a sample of housing units listed between 2015 -2019, we find that listing price in Yanjiao and Dachang drops by 25.1% relative to Tongzhou since local governments clarify the rumor. We further evidence that herding and speculation accelerate the price bust, and a small group of housing speculators trade the price down through the contagion effect.
{"title":"The Rise and Fall of a Rumor: Evidence from Regional Housing Markets in China","authors":"Fan Zhang, Yanjiang Zhang, Jiayang Song","doi":"10.2139/ssrn.3837195","DOIUrl":"https://doi.org/10.2139/ssrn.3837195","url":null,"abstract":"In this paper, we examine how the enforcement and collapse of a rumor affect regional housing markets in China. Specifically, we trace the rumor that Yanjiao and Dachang, two counties in Hebei province, were to be merged into Tongzhou, a county of Beijing, and quantify the bust of housing prices when the rumor collapses. Using a difference-in-difference approach in a sample of housing units listed between 2015 -2019, we find that listing price in Yanjiao and Dachang drops by 25.1% relative to Tongzhou since local governments clarify the rumor. We further evidence that herding and speculation accelerate the price bust, and a small group of housing speculators trade the price down through the contagion effect.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78567971","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the effect of housing wealth shocks on workplace shirking behavior. We use the type and actual time stamps of 10.6 million credit card transactions by over 200,000 cardholders from a large commercial bank to detect non-work-related behavior during work hours. After positive shocks to house prices, employed homeowners in the treatment group experienced a fast and persistent increase (by 19% per month) in their propensity to use work hours to attend to personal needs. The post-shock response is more pronounced among homeowners with a greater wealth increase, among employees with poorer career potential, or for occupations with higher monitoring costs. Our estimate implies an elasticity of shirking propensity with respect to house price of 3.8.
{"title":"The Effect of Wealth Shocks on Shirking: Evidence from the Housing Market","authors":"Quanlin Gu, Jia He, Wenlan Qian, Yuan Ren","doi":"10.2139/ssrn.3189933","DOIUrl":"https://doi.org/10.2139/ssrn.3189933","url":null,"abstract":"This paper studies the effect of housing wealth shocks on workplace shirking behavior. We use the type and actual time stamps of 10.6 million credit card transactions by over 200,000 cardholders from a large commercial bank to detect non-work-related behavior during work hours. After positive shocks to house prices, employed homeowners in the treatment group experienced a fast and persistent increase (by 19% per month) in their propensity to use work hours to attend to personal needs. The post-shock response is more pronounced among homeowners with a greater wealth increase, among employees with poorer career potential, or for occupations with higher monitoring costs. Our estimate implies an elasticity of shirking propensity with respect to house price of 3.8.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89170308","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is hard to estimate housing supply elasticities. India is a particularly useful country to study housing supply because it is large and has a variety of housing typologies. We estimate the supply elasticity of non-durable, durable, and vacant residential housing units in urban India. We use two migration-inducing exogenous events --- negative rainfall shocks and a highway upgrade program --- occurring in a distant state as demand shifters for local urban housing markets. We apply the Rosen-Roback spatial equilibrium framework to show that both the negative rainfall shocks and the highway upgrade program in a distant state increase inter-state migration. This increase leads to higher population and household growth, and therefore, higher demand for housing in local urban markets. Our findings are three-fold. First, we estimate the long-term supply elasticity of durable housing in urban India to be 1.64. This estimate is substantially lower than the long-run housing supply elasticity estimates of 6-13 for metropolitan areas in the United States seen in the literature. Second, we find that the supply elasticity of non-durable housing is -0.55. Negative supply elasticity of non-durable housing is consistent with the existence of urban gentrification through the demolition and upgrading of slums. And finally, we estimate the elasticity of vacant residential housing unit supply to be 2.63. We posit that a relatively higher vacant housing unit elasticity indicates speculative building by developers.
{"title":"Distant Shocks, Migration, and Housing Supply in India","authors":"Arnab Dutta, S. Gandhi, Richard K. Green","doi":"10.2139/ssrn.3820187","DOIUrl":"https://doi.org/10.2139/ssrn.3820187","url":null,"abstract":"It is hard to estimate housing supply elasticities. India is a particularly useful country to study housing supply because it is large and has a variety of housing typologies. We estimate the supply elasticity of non-durable, durable, and vacant residential housing units in urban India. We use two migration-inducing exogenous events --- negative rainfall shocks and a highway upgrade program --- occurring in a distant state as demand shifters for local urban housing markets. We apply the Rosen-Roback spatial equilibrium framework to show that both the negative rainfall shocks and the highway upgrade program in a distant state increase inter-state migration. This increase leads to higher population and household growth, and therefore, higher demand for housing in local urban markets. Our findings are three-fold. First, we estimate the long-term supply elasticity of durable housing in urban India to be 1.64. This estimate is substantially lower than the long-run housing supply elasticity estimates of 6-13 for metropolitan areas in the United States seen in the literature. Second, we find that the supply elasticity of non-durable housing is -0.55. Negative supply elasticity of non-durable housing is consistent with the existence of urban gentrification through the demolition and upgrading of slums. And finally, we estimate the elasticity of vacant residential housing unit supply to be 2.63. We posit that a relatively higher vacant housing unit elasticity indicates speculative building by developers.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91470130","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the relationship between funding liquidity and the valuation of mortgage-backed securities. Most of the financing for mortgage-backed securities occurs through a trade known as a dollar roll, the simultaneous sale and purchase of forward contracts on mortgage-backed securities that is analogous to a repurchase agreement. We develop a four-factor no-arbitrage model for valuing mortgage-backed securities that allows for the valuation of dollar rolls. Unlike previous models of the dollar roll, we allow for the possibility of a prepayment risk premium. We develop a new model-implied measure of funding liquidity of MBS investors that is independent of prepayment risk premia and agency credit spreads. We find that our implied funding liquidity spread is strongly related to measures of intermediary balance sheet constraints and primary dealer positions in mortgage-backed securities.
{"title":"Funding Liquidity and the Valuation of Mortgage-Backed Securities","authors":"Brett Dunn, Mahyar Kargar","doi":"10.2139/ssrn.3813212","DOIUrl":"https://doi.org/10.2139/ssrn.3813212","url":null,"abstract":"We study the relationship between funding liquidity and the valuation of mortgage-backed securities. Most of the financing for mortgage-backed securities occurs through a trade known as a dollar roll, the simultaneous sale and purchase of forward contracts on mortgage-backed securities that is analogous to a repurchase agreement. We develop a four-factor no-arbitrage model for valuing mortgage-backed securities that allows for the valuation of dollar rolls. Unlike previous models of the dollar roll, we allow for the possibility of a prepayment risk premium. We develop a new model-implied measure of funding liquidity of MBS investors that is independent of prepayment risk premia and agency credit spreads. We find that our implied funding liquidity spread is strongly related to measures of intermediary balance sheet constraints and primary dealer positions in mortgage-backed securities.","PeriodicalId":21047,"journal":{"name":"Real Estate eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-03-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89163643","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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