The Slowdown in Residential Investment and Future Prospects

Using a statistical model, we find that three factors explain most of the decline in residential investment at the end of 2013 and the beginning of 2014: the increase in mortgage rates since early 2013, the unusually cold winter, and a modest tightening of lending standards in the residential mortga...

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Bibliographic Details
Published in:Economic commentary (Cleveland) 2014-05 (2014-10), p.1-6
Main Authors: Knotek, Edward S. II, Zaman, Saeed
Format: Article
Language:English
Subjects:
Cold
Decomposition
Diffusion index
Dwellings
Economic conditions
GDP
Gross Domestic Product
Housing
Investments
Lending
Mortgage rates
Mortgages
Residential buildings
Restrictions
Simulation
Statistical methods
Studies
Weather
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Summary:Using a statistical model, we find that three factors explain most of the decline in residential investment at the end of 2013 and the beginning of 2014: the increase in mortgage rates since early 2013, the unusually cold winter, and a modest tightening of lending standards in the residential mortgage market. Future prospects for residential investment depend heavily on mortgage rates. A return to normal weather and easing lending standards would boost activity, but even moderate increases in mortgage rates through the end of next year could restrain residential investment going forward.
ISSN:0428-1276
2163-3738
DOI:10.26509/frbc-ec-201410