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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.

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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Copyright 2005 Gale, Cengage Learning. All rights reserved.

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Publication:Financial Update
Date:Jul 1, 2005
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