Lecture12-housing

Lecture12-housing - Tracking Housing Econ 2: Principles of...

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Unformatted text preview: Tracking Housing Econ 2: Principles of Macroeconomics Peter Rupert UCSB Winter, 2010 1 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Stock Market DJIA was about 10,124 when we looked at it last Thursday go to: DJIA 2 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Tracking the Economy 3 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Tracking the Economy 4 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Tracking the Economy 5 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Tracking the Economy 6 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Tracking the Economy 7 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Tracking the Economy 8 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Housing Turn to recent events in the economy 9 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Housing and the Financial Mess (1) Subprime mortgages refers to: (a.) Borrowers who pay less than the prime rate (b.) Low quality/high risk borrowers (c.) Low quality lenders or banks (d.) The Fed Funds rate less than the prime nominal rate (e.) Banks that pay less than the prime rate 10 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Housing and the Financial Mess (1) Subprime mortgages refers to: (a.) Borrowers who pay less than the prime rate (b.) Low quality/high risk borrowers X (c.) Low quality lenders or banks (d.) The Fed Funds rate less than the prime nominal rate (e.) Banks that pay less than the prime rate 10 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Prime and Subprime These terms refer to the quality of the borrower Prime borrower Good credit history Lower risk Good and stable income Subprime borrower Poor credit history (FICO: less than 620) High risk Income unstable (or non-existent?) Do not qualify for market interest rates 11 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Setting Dotcom bubble burst early 2000 Sept. 11, 2001 Created fear that the economy would slip into a recession 12 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Year Effective Rate 1960 1970 1980 1990 2000 2010 5 10 15 20 Effective Federal Funds Rate Source: Federal Reserve 13 / 42 Econ 2: Principles of Macroeconomics Tracking Housing Setting: One story Fed cut rates i.e., bought bonds Price of bonds up Interest rate down So, lots of money (liquidity) in the system 14 / 42 Econ 2: Principles of Macroeconomics Tracking...
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This note was uploaded on 11/15/2010 for the course ECON 2 taught by Professor Rupert during the Winter '08 term at UCSB.

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Lecture12-housing - Tracking Housing Econ 2: Principles of...

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