Mortgaging Our Future?

Government programs for mortgage lending implicated in the Great Recession--

Mortgaging the Future? | The Big Picture: ".... in the postwar period an above average mortgage-lending boom unequivocally makes both financial and normal recessions worse. By year five GDP per capita can fall considerably, as much as 3 percentage points lower than it would have otherwise been. In contrast, booms in nonmortgage credit have virtually no effect on the shape of the recession in the same postwar period. Why the difference? At this point we can only speculate. A mortgage boom gone bust is typically followed by rapid household deleveraging, which tends to depress overall demand as borrowers shift away from consumption toward saving. This has been one of the most visible features of the slow U.S. recovery from the global financial crisis (Mian and Sufi 2014)... Our research suggests that the explosion of credit has played a more important role in shaping the business cycle than has been appreciated up to now. A growing consensus along these lines has renewed interest in revisiting the assumptions about cyclical macroprudential policy (for example, Aikman, Haldane, and Nelson 2014). Much of the recent expansion in bank lending took place through real estate lending, and this particular component of the credit mix appears to have the most relevant macroeconomic effects. A natural inference is that economic policy needs to adapt to this new reality." (read more at the link above)


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