About the Book
Although the United States has developed highly sophisticated markets for funding corporate investment projects, markets for financing home ownership are comparatively rudimentary. When a corporation wishes to fund a project, it can choose any mix of debt and equity financing. In contrast, to buy a home, a household must take on debt in the form of a mortgage. The authors of this book propose the development of new markets, called Partnership Markets, that would allow households to use equity finance to buy their homes. With these new markets, a household would be able to finance housing not only with a mortgage, but also with an institutional investor who would provide part of the equity capital for the house in exchange for a share of the ultimate selling price.The new markets would offer many benefits to both homeowners and the broader financial community. In the current market, many Americans are forced to rent housing because they cannot afford to buy. Those who do buy are burdened with high debt payments. They also have the vast majority of their wealth tied up in their home and are exposed to the high risk levels of such an undiversified portfolio.
With Partnership Markets, households would be able to buy homes with much smaller mortgages, thereby greatly reducing their expenses. They would also be able to diversify their assets and create less risky portfolios. For the broader financial community, Partnership Markets would provide an opportunity to diversify into the residential real estate market.To give the reader a rounded view of their proposal, the authors explain the economic theory of the housing market and the housing finance market, as well as key aspects of the institutional structure and performance records of the current market. They discuss the wider ramifications of their proposal, including changes in the form and structure of the secondary market, the government's role in the housing market, the composition of assets held by institutions, and the general level of risk for individuals.
Table of Contents:
Part 1 Introduction: overview; guide to chapters; concluding remarks. Part 2 The mortgage market and housing market: buy or rent? - some facts, household preferences, introduction to the mortgage market, the affordability approach; the mortgage market and the budget set - a simple guide to the mortgage market, the three basic products, the computations - simplifying assumptions, the costs of purchasing a $100,000 home, the feasible set of houses; home ownership and the life cycle - the early years - a time of high pressure, time to save and the house poor - some numerical examples, the later years - inertia, the liquidity of housing wealth and consumption possibilities, the middle years - ownership and anxiety; home ownership and risk - the variability of house prices, the correlation between house price risk and income risk, mortgages and the problem of indebtedness, housing investment and the asset postfolio. Part 3 The partnership market and the housing market: introduction to the partnership market - overview of the partnership market, will there be any demand for limited partnerships?, the managing partner's portfolio, the managing partner's valuation of the second half of the house, the limited partner's valuation of the second half of the house; new options for home ownership - partnerships and the costs of a $100,000 home, partnerships and trading up, mixed motives, the impact of price, appendix; partnerships and the life cycle - easing the transition to ownership - illustrative examples, partnerships and the middle years, partnerships and the later years, dynamics and adjustment in the partnership market. Part 4 The supply side: the partnership contract - guide to the contract, clauses covering the purchase, clauses that ensure adequate maintenance, alterations, the sales process, breach, the partnership contract and the mortgage contract; secondary partnership market for trading real estate (SCEPTRE) - the secondary mortgage market, the secondary partnership market, SCEPTRE and new investment vehicles; the primary mortgage market - the household's search-and-application process, screening by the mortgage originator, the variety of mortgage products, the structure of the primary mortgage industry; the primary partnership market - the household's search-and-application process, screening by the partnership originator and the mortgage originator, the range of partnership products, the structure of the primary partnership industry. (Part contents).
About the Author :
Joseph Tracy is Director of Research at the Federal Reserve Bank of New York.
Review :
"I am very enthusiastic about this book. It makes an extremelyimportant proposal that ought to become a part of our mortgage lendinginstitutions, and be offered to millions of homeowners. The book notonly outlines the idea, it is also very thorough in presenting theconcrete problems, and creative in suggesting contractual forms thatwill deal with them. This book could change the world." Robert J. Shiller, Stanley B. Resor Professor of Economics,Yale University "Housing Partnerships is a serious discussion of financialreform in housing by some of economics' most distinguished scholars,and a significant contribution to the policy reforms suggested forhousing market problems." Ed Glaeser, Paul Sack Associate Professor of Political Economy,Harvard University
