Home Ownership This High?

Michael Cohen mike at cns.bu.edu
Sun Oct 25 17:11:36 PST 1998

> Brad De Long wrote:

> Stagnant real *wages* for males (if you believe that the CPI is an accurate
> measure of inflation (which I have begun thinking it is not, or rather,
> that for the poor the CPI is pretty accurate and for the rest it is no)).
> Conditional on your having two adults in the household, however, family
> incomes have risen a bunch with increasing female labor force participation.
> How much, if any, of this increase in *incomes* is an increase in *material
> welfare* is a hard question. But it does mean that households have more
> cash income with which to pay their mortgages.
> Brad DeLong


Isn't this a complicated story.

1. Two income families are earning more in dollars per family. 2. Prices of housing has increased faster than the rate of inflation 3. Credit is easier to get at higher margins for mortgages than 30 years ago.

4. Debt level of families are higher than they are 30 years ago so. i.e. they have less

true disposable income and are willing to assume a higher percentage of their

incomes in debt. 5. Rate of conversion from homeowners to nonhomeowners remains low and has been

low on a percentage basis, i.e. deaths of owners and flow into apartments are

matched by purchasers. i.e. although bankruptcies and foreclosures are high they

are not high enough to change the story significantly.

The net effect of 1 -- 5 has been a stable rate of home ownership. I'm sure some economist probably at the Fed, studies this in detail and can tell which of these factors or other ones which I haven't mentioned are critical over which time period since 1960 or so.

I poked around your Web Site which seems like a great deal of fun. I found a paper with yourself first author, Andrei Shleifer, Lawrence Summers and Robert Waldman entitled "Noise Trader Risk in Financial Markets", I believe Doug cited this in his book. The paper argues for the long term irrationality of stock exchange markets. What is the status of this model in economic research. It was completed about 10 years ago, has your viewpoint on the issues discussed the same.

This raises another question. On this list Michael Perelman remarked that L. Summers went ballistic at a symposium when it was remarked that he wrote a paper cautiously approving something like the Tobin Tax under certain limited circumstances. As part of the federal beaurocracy in Washington is it worse to propose an action in an early academic paper which threatens the interests of core constituents of a ruling party or group than to write something which potentially undermines the dominant ideology. If someone were to ask him if markets were often irrationally priced over long periods of time would this also be seen as a threat. Or is it the fact that math is involved (I haven't read the stochastics yet but it looks fairly simple), which is allows one to have true academic freedom or is this just a curiosity involving your the third author's personality. It looks like these days that as far as public free speech goes, government beaurocrats may have very little real freedom of action.

--mike -- Michael Cohen mike at cns.bu.edu Work: 677 Beacon, Street, Rm313 Boston, Mass 02115 Home: 25 Stearns Rd, #3 Brookline, Mass 02146 Tel-Work: 617-353-9484 Tel-Home:617-734-8828 Tel-FAX:617-353-7755

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