MBS: Making mortgage finance sexy
admin | January 8, 2020
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Lower interest rates may do a lot more than just reflate the economy. Fed researchers studying the Great Recession in the UK found nine months after a drop in monetary policy rates, births among families paying an adjustable rate mortgage jumped. A 1% drop in ARM rates predicted a 5% rise in births— or a 2% increase overall in the UK birth rate. About half of families of child-bearing age at the start of the Great Recession had mortgages, and, of those, about half had loans tied immediately to the policy rate. The rest had loans with initial fixed periods. The study results came from differences in births across those groups from 2008 through 2009 as rates fell 4.5%. In contrast, the US, with a much lower ARM share, saw a Great Recession ‘baby bust.’ The study controlled for other influences such as growth, inflation, unemployment and local home prices. The researchers focused on the issue as an example of policy influence on consumer spending. The Fed study is here. (Federal Reserve, APS).
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