Back of the envelope estimate of mortgage crackdown

Here’s another quick and dirty estimate of the decline in mortgage access.

Figure 1 here shows the number of mortgage accounts outstanding, according to the New York Fed.

Figure 1

In Figure 1, I have indexed population, adult population 20+, and total number of households so that they match the number of mortgages outstanding in the 3rd quarter of 2003. That is before the rise of the private subprime boom. And, as you can see in the chart, the New York Fed picks up an anomalous number of new mortgages after that.

Their estimate does not track with other estimates of mortgages outstanding, like the Federal Reserve’s Survey of Consumer Finances. I think that their bump in mortgage accounts from 2003 to 2007 reflects a lot of the unusual activity that was happening at the time, including things like borrowers buying speculative properties with loans misidentified as primary home mortgages, unreported second mortgages, and things like that.

That added up to close to 15 million of exceptional mortgages. Quite a credit boom. Then, as has become the mantra here at EHT, we fully swung the pendulum the other way. The 15 million extra mortgages associated with the private securitization boom went away, and we also knocked 15 million borrowers out of the market who would have been borrowers at any time in the decades before 2008.

Relative to population growth, we’re down by about 7 million mortgages, but a lot of that population decline has been from fewer children in each household. (Hm. I wonder what sort of factors might lead to a decline in child-bearing or family formation. Of course, among the naive and those of bad faith, declining population and family formation are reasons why we don’t need more homes. “Give it 30 years, and we’ll be in a surplus, at the rate we’re going!”)

Relative to household formation and the growth of the adult population, we’re down about 13 million mortgages. As I have pointed out, household formation is clearly down, because of the mortgage crackdown. You can see in Figure 1 that it started to veer below the adult population trend after 2008. It recovered a bit, and now the trend of households and adult population are at similar levels.

There has been a long-term decline in adults per household, going back decades. More widows. More unmarried young adults. Etc. You can see that trend from 2000 to 2006. Not anything extreme. Just a slightly steeper trend rate over time that reversed in 2008. I have estimated that the historical trend would have led to about 7 million additional households by now, relative to the adult population. Some large minority of them, under normal conditions, would have mortgages.

Something like 15 million missing mortgages. And I’m not talking about NINJA loans.

Is my work too sloppy for you? Do you need robustness tests, adjusted standard errors, and homoscedasticity tests? Have I failed to establish causality?

As I put it in the equally sloppy previous post, there was a one-time 15 million household shock, and now homeownership and mortgage accounts are rising in line again with the trends in adult population and household growth, just at a level 15 million mortgages less than they used to be. If that’s not the centerpiece of your personal model of 20 years of housing, you’re going to have a lot of mysteries to solve.

Whether it’s mortgages, households, homes, etc., I keep hitting numbers between 10 and 20 million. Until those numbers start settling into the low single-digits, I’m not going to worry too much about hyper-specificity. And, I’ll let others work on whether the spike in umbrella sales caused the hurricane, or the other way around. Or whether the hurricane simply reflected our preferences for rain. Those remain very important technical questions for somebody else to take up.