Findings

Like a Good Neighbor

Kevin Lewis

December 21, 2009

Ethnic Neighborhoods in Multi-Ethnic America, 1990-2000: Resurgent Ethnicity in the Ethnoburbs?

Ming Wen, Diane Lauderdale & Namratha Kandula
Social Forces, September 2009, Pages 425-460

Abstract:
Using tract-level data from the 1990 and 2000 U.S. Census, this study addresses four questions: (1. Has the proportion of neighborhoods with high ethnic concentration changed in from 1990 to 2000? (2. What are the socio-demographic profiles of ethnic neighborhoods? (3. Are new ethnic neighborhoods forming in America's suburbs? (4. How common are ethnoburbs - that is, affluent, suburban, ethnic neighborhoods? For most racial/ethnic groups, the number and share of ethnic neighborhoods grew from 1990 to 2000 and the suburbanization trend was remarkable. Asian neighborhoods as a whole experienced the fastest growth. Ethnoburbs have formed across the country. Although ethnoburbs are more an Asian phenomenon, Hispanic and black ethnoburbs have also developed. These patterns support the segmented assimilation model and the resurgence of ethnicity perspectives.

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Days on Market and Home Sales

Catherine Tucker, Juanjuan Zhang & Ting Zhu
MIT Working Paper, September 2009

Abstract:
In April 2006, the real estate listing service in Massachusetts adopted a new policy that prohibits home sellers from resetting their property's "days on market" to zero through relisting. We study the effect of this new policy on single-family home sales along the Massachusetts-Rhode Island border, using homes in Rhode Island, which did not change its policy, as the control group. We find that the policy change leads to a relative sale price reduction of around $11,000 for affected homes in Massachusetts. Homes caught in the middle of the policy change are the hardest hit; the sudden release of the cumulative days on market information lowers the average sale price by $21,500. Sellers respond to the new policy by reducing the listing price to shorten their property's days on market.

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Residential Asking Rents and Time on the Market

Marcus Allen, Ronald Rutherford & Thomas Thomson
Journal of Real Estate Finance and Economics, May 2009, Pages 351-365

Abstract:
Landlords offering a house in the rental market face a difficult strategic pricing decision. The revenue maximizing decision for the landlord involves a tradeoff between the rental rate and time on the market. Because the turnover of renters is higher than owners, and because the landlord must bear some carrying costs on a vacant house, pricing the rent too high may decrease revenue due to a higher vacancy period and pricing it too low may reduce the revenue when occupied. While there is substantial research on the relationship between listed prices and time on the market for freehold interests, this is the first study to provide empirical evidence on the relationship between asking rent, contract rent and time on the market for single family residential rental (leasehold) property interests. We present two models; a rental price model and a duration model for time-on-the market. Using data from the Dallas-Fort Worth area we find that landlords who set a lower asking rent relative to predicted rent can expect a shorter marketing period for their properties. The results also indicate that overpricing the asking rent and then lowering it at a later date leads to a longer marketing time (after the reset) and often a lower rent. These findings are reasonably robust for low-, mid-, and higher-valued rental properties.

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Credit scores, race, and residential sorting

Ashlyn Aiko Nelson
Journal of Policy Analysis and Management, Winter 2010, Pages 39-68

Abstract:
Credit scores have a profound impact on home purchasing power and mortgage pricing, yet little is known about how credit scores influence households' residential location decisions. This study estimates the effects of credit scores on residential sorting behavior using a novel mortgage industry data set combining household demographic, credit, and financial data with property location information and detailed community attribute data. I employ the data set to estimate a discrete-choice residential sorting model. I find that credit scores significantly predict residential sorting behavior and models that do not account for credit score provide biased estimates of housing utilities for black households in particular. Simulation results show that increases in credit score are associated with increases in the consumption of higher-priced homes in more expensive school districts, higher-quality public schools, and proximity to urban/metropolitan areas.

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Minority Lending and the Subprime Foreclosure Crisis: Are Government Regulations to Blame?

Henock Louis
Pennsylvania State University Working Paper, October 2009

Abstract:
The current mortgage foreclosure crisis is presumably related to lax lending policies pursued by financial institutions that extended mortgages to borrowers with questionable credit. These so-called subprime mortgage loans are disproportionately offered in minority communities. Accordingly, some economists argue that the crisis is the result of government regulations, which facilitate mortgage access to minorities. Lenders are profit maximizers and regulations supposedly force them to engage in suboptimal behavior by extending credit to unworthy minorities. However, I find that, while subprime mortgage lending is higher in minority areas, the estimated mortgage foreclosure rate is lower in these areas. This evidence is inconsistent with the contention that regulations encouraging lending in minority areas contribute to the subprime foreclosure crisis. It instead indicates that the loan pricing process is biased against minorities, with lenders charging interest rates in minority areas that are not commensurate with the risk profiles of these areas' residents. On average, moving from the bottom decile to the top decile of minority representations increases a county's subprime lending by about 25.25%, but reduces the estimated subprime foreclosure rate by about 27.25%. I find no indication that the minority effect could be due to correlated omitted variables. Further analyses are suggestive of some form of irrational statistical discrimination, whereby unfamiliarity with minorities and stereotyping induce biases in lenders' assessments of borrowers' creditworthiness. Overall, the evidence calls for more government regulations of lending practices in minority areas and not less.

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"It Depends on How You Define Integrated": Neighborhood Boundaries and Racial Integration in a Baltimore Neighborhood

Meghan Ashlin Rich
Sociological Forum, December 2009, Pages 828-853

Abstract:
There are a significant number of racially integrated neighborhoods in the United States, many of which have been stable over time. However, very little is known about the characteristics of these neighborhoods and of the residents who live in them. With data taken from a larger study of an integrated neighborhood in Baltimore, Maryland, this article discusses homeowners' perceptions of their community and racial integration. Fifty semi-structured interviews were completed with 67 homeowners to investigate their perceptions and experiences of race, class, and change in their community. This study shows that statistical racial integration and perceptions of racial integration are two different factors. Residents define true racial integration as both residential and social. As a result, homeowners reported that their neighborhood is both segregated and integrated - a type of "qualified" integration. Perceptions of racial integration are also affected by inconsistently defined neighborhood boundaries and racial clustering, block by block.

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The Capitalization of Building Codes in House Prices

Randy Dumm, Stacy Sirmans & Greg Smersh
Journal of Real Estate Finance and Economics, forthcoming

Abstract:
Some research shows that homes built under tougher building codes perform better in hurricanes. While houses built after the implementation of the stronger building codes could be presumed to be "safer", no study has measured the extent to which stricter building codes are capitalized into improved property. This study measures the capitalization of stricter building codes into house prices. In addition, the study examines whether homebuyers attach greater value to the stricter building codes after the "reality check" of the 2004 and 2005 hurricane seasons. A hedonic pricing model is used to capture the differential effect on house prices of the stricter 1994 South Florida Building Code for properties sold from 2000 through 2007 in Miami-Dade County. The model also measures any increase in the marginal value of the stronger building code after the 2004/2005 storm season. Models are estimated for the aggregate data and for three geographical zones based on risk exposure. Results show that the stricter building code has a positive effect on selling price. The greatest effect is seen in the coastal zone, which has the greatest risk exposure. Selling prices for homes built under the new code were about 10.4% higher than prices for comparable homes built under the older, less strict code. The premium for safety is shown to decrease as the hurricane risk exposure decreases. For geographical areas with less risk exposure, there is less capitalization of the stricter building code into house prices. The post-catastrophe ("reality check") variables show that, following the minimal impact of the 2004 hurricanes on the Miami area, the premium that consumers are willing to pay for structural integrity disappears. However, after the 2005 hurricanes, which were more devastating to the Miami area, the building code premium returns.

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"Scratchin' and Surviving" or "Movin' on Up?" Two Sources of Change in Children's Neighborhood SES

Jeffrey Timberlake
Population Research and Policy Review, April 2009, Pages 195-219

Abstract:
This research investigates the extent to which racial and ethnic inequality in children's neighborhood socioeconomic status (SES) is exacerbated or attenuated via two mechanisms: changing neighborhood characteristics for residentially nonmobile children, and differences in the SES of destination versus origin neighborhoods for residentially mobile children. I use longitudinal data to estimate year-to-year change via these two mechanisms in four measures of neighborhood SES for white, black, and Latino children. I find that nonmobile white children experience greater improvement in neighborhood SES than statistically comparable black and Latino children. However, I find lower levels of inequality in neighborhood SES returns to residential mobility; in fact, in many cases those returns are greater for minority children than for white children. These findings suggest that continued inequality in children's neighborhood contexts is not due primarily to inequality in outcomes of residential moves, but rather to the greater tendency of white children to reside in neighborhoods with higher levels of SES, and the greater likelihood of those neighborhoods to maintain or improve their levels of SES over time.

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Real Estate Brokers and Commission: Theory and Calibrations

Oz Shy
Federal Reserve Bank Working Paper, September 2009

Abstract:
The author constructs a theoretical model to examine the effects of an inherent conflict of interest between a seller of a house and the real estate broker hired by the seller. The model is then used to calibrate the broker's commission rates that would maximize the seller's expected gain. The findings suggest that while the pressure brokers exert on sellers to reduce prices generates faster sales and hence improves social welfare, the usual commission rate of 6 percent exceeds the seller's value-maximizing rate if the sale is handled by a single agent. On the other hand, if several agents (such as the buyer's and seller's brokers and the agencies that employ these realtors) split the commission, then a 6 percent commission rate may be required to motivate the broker to sell at a high price.

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Do Repeated Wildfires Change Homebuyers' Demand for Homes in High-Risk Areas? A Hedonic Analysis of the Short and Long-Term Effects of Repeated Wildfires on House Prices in Southern California

Julie Mueller, John Loomis & Armando González-Cabán
Journal of Real Estate Finance and Economics, February 2009, Pages 155-172

Abstract:
Unlike most hedonic studies that analyze the effects of a one-time event, this paper analyzes the effects of forest fires that are several years apart in a small geographical area. We find that repeated forest fires cause house prices to decrease for houses located near the fires. We test and reject the hypothesis that the house price reduction from one fire is equal to the house price reduction from a second fire. The first fire reduces house prices by about 10%, while the second fire reduces house prices by nearly 23%, a statistically significant difference. The pattern of these results are robust to several alternative econometric specifications.

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Trust and growth

Oguzhan Dincer & Eric Uslaner
Public Choice, January 2010, Pages 59-67

Abstract:
Using data from U.S. states, we find a positive relationship between trust and growth. According to our results, a 10 percentage point increase in trust increases the growth rate of GDP by 0.5 percentage points and the growth rate of manufacturing employment by 1.3 percentage points over a five-year period. Our results are robust to the endogeneity between trust and growth.

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Trust in Diverse, Integrated, Cities: A Revisionist Perspective

Jonathan Rothwell
Princeton Working Paper, March 2009

Abstract:
A body of recent research claims that diversity hinders general trust, but these studies suffer from omitted variables bias by excluding segregation. This article re-examines the issue by considering how the residential isolation of minorities alters trust in cities. The first half of this study closely follows the data and methods of a recent publication and reaches the opposite conclusion by including a comprehensive measure of neighborhood segregation. The data on trust are measured for individuals living in U.S. metropolitan areas. The results strongly suggest that integration increases trust, and if anything, diversity fosters trust for any given level of segregation. The results are replicated using voting as a proxy for trust and civic participation. The mechanism is explored by analyzing the attitudes of whites towards blacks. Diversity and integration are both associated with significantly more favorable attitudes towards blacks. Trust has been identified as a source of good governance and growth; integration is likely to enhance this without presenting a tradeoff between equity and aggregate welfare.

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Policy incentives and the extension of mortgage credit: Increasing market discipline for subprime lending

Xudong An & Raphael Bostic
Journal of Policy Analysis and Management, Summer 2009, Pages 340-365

Abstract:
The lax underwriting in non-prime mortgage markets is widely perceived as one cause of the recent difficulties in the housing market. Policymakers are currently considering moves such as enforcing more careful underwriting to provide additional discipline to mortgage markets. This research explores the possibility of another approach to supplement or replace some of these efforts, namely the use of policy to create incentives for Fannie Mae and Freddie Mac (together, the GSEs) to help check behavior in non-prime markets. The hypothesis is that the GSE Act affordable housing goals have increased GSE focus on targeted loan purchases, which in turn has led prime market lenders to compete more aggressively for borrowers on the margin between prime and subprime credit quality. As a consequence, these marginal borrowers will be more inclined to take prime mortgages rather than higher-cost subprime loans. We test this hypothesis and find empirical support for it. We observe a negative relationship between the growth in GSE market share and the growth in subprime market share over time, and find that the impact of the GSEs on subprime lending tends to be stronger in high-minority neighborhoods, where subprime lending has been concentrated and growing the fastest. Simulations show that a 10 percent increase in GSE market share (for example, from 20 to 22 percent) can cause 45,000 borrowers using prime instead of subprime loans a cost savings of about $1.7 billion. These results suggest that the GSEs, regardless of their postconservatorship form, should continue to devote attention to serving underserved populations and suggest that significant welfare benefits will accrue.

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The Fundamental Law of Road Congestion: Evidence from US cities

Gilles Duranton & Matthew Turner
NBER Working Paper, September 2009

Abstract:
We investigate the relationship between interstate highways and highway vehicle kilometers traveled (VKT) in US cities. We find that VKT increases proportionately to highways and identify three important sources for this extra VKT: an increase in driving by current residents; an increase in transportation intensive production activity; and an inflow of new residents. The provision of public transportation has no impact on VKT. We also estimate the aggregate city level demand for VKT and find it to be very elastic. We conclude that an increased provision of roads or public transit is unlikely to relieve congestion.

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Public Perceptions of the U.S. Residential Housing Market Before, During, and After the Housing Bubble (1990-2009)

Carroll Glynn, Carole Lunney & Michael Huge
Public Opinion Quarterly, forthcoming

Abstract:
The residential real estate market in the United States experienced unprecedented growth beginning in the late 1990s, followed by a dramatic downturn starting around the middle of 2006. By tracking opinions and perceptions of the U.S. housing market before, during, and after the real estate boom, this article traces a dramatic shift in public perceptions about general impressions of the housing market, past perceptions and future expectations of housing prices, perceptions of the likelihood of a "housing bubble," and opinions about whether it is a good or bad time to buy a house. Overall, the downturn in public perceptions of the housing market changed along with or lagged somewhat behind the downturn in housing prices. Additionally, most were more optimistic about the local housing market than the national housing market, and were less pessimistic about the longer term than the next year. Finally, even given the worsening conditions in the housing market, by the end of 2008, about seven in ten Americans felt it was a good time to buy a house.

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Housing appreciation (depreciation) and owners' welfare

Fu-Chuan Lai, John McDonald & David Merriman
Journal of Housing Economics, forthcoming

Abstract:
This paper extends Frank's (2006) very simple model to analyze the welfare effects of appreciation and depreciation in a world with borrowing, property taxes, and moving costs. It is shown that appreciation can make homeowners worse off but that even when there is a property tax depreciation can not make homeowners who intend to stay in their house worse off. Our model provides a simple framework that can be used discuss the rationale for alternative policies to aid homeowners during periods of both appreciation and depreciation.
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Why Do the Swiss Rent?

Steven Bourassa & Martin Hoesli
Journal of Real Estate Finance and Economics, forthcoming

Abstract:
At less than 34%, Switzerland has the lowest home ownership rate in Western Europe. This may seem odd given the economic strength of the country. We use household survey data for five Swiss cantons to explore some possible reasons for this. We estimate a tenure choice equation that allows us to analyze the impacts of a number of key variables on the ownership rate. We pay particular attention to the relative cost of owning and renting, which is a function of house prices, rents, and the user cost of owning. The latter is a function of income tax policy and expected house price inflation, among other things. We also measure mortgage underwriting criteria and consider rent control and other policies affecting rental housing. By simulating a number of hypothetical changes to taxation and other policies, underwriting criteria, and price levels, we assess the importance of these variables in explaining the ownership rate. We conclude that high house prices - relative to household incomes and wealth - and the tax on imputed rent are the most important causes of Switzerland's low ownership rate.


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