Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
Upside of Inequality Oxford Unintended Consequences

AI Summary. Using a century of monthly U.S. building permit data for all states and the 60 largest metro areas, the authors find volatility in residential building permit growth predicts aggregate and cross-sectional stock and corporate bond return volatility, even after controlling for corporate and household leverage and debt service ratios.

Gustavo Cortes and Cameron LaPoint Working Paper
Date Posted:
Is Database:
Database

US data since 1919 shows that volatility in building permits foreshadows financial market volatility. “Cities and states with more elastic housing supply consistently predict financial market downturns at 12-month horizons.” @cslapoint @CortesGustavoS

Does housing construction volatility predict stock and bond market volatility?

Core argument: Volatility in residential building permit growth predicts aggregate and cross-sectional stock and corporate bond return volatility, according to a hand-collected century-long database of monthly permit quantities and valuations for all U.S. states and the 60 largest MSAs.

Does the housing market lead the financial cycle? We address this question by creating a new hand-collected database spanning a century of monthly building permit quantities and valuations for all U.S. states and the 60 largest MSAs. We show that the option to build embedded in permits renders volatility in residential building permit growth (BPG) a strong predictor of aggregate and cross-sectional stock and corporate bond return volatility. This predictability remains even after conditioning on a battery of factors, including corporate and household leverage [thus arising] independently of the credit cycle] and firms’ exposure through their network of plants to other localized physical risks like natural disasters conditional on measures of corporate and household leverage and debt service ratios. Cities and states with more elastic housing supply consistently predict financial market downturns at 12-month horizons, resulting in new trading strategies to hedge against overbuilding risk.

Takeaways by Macro Roundup® AI

  1. Volatility in residential building permit growth predicts aggregate and cross-sectional stock and corporate bond return volatility, according to a hand-collected century-long database of monthly permit quantities and valuations for all U.S. states and the 60 largest MSAs.
  2. The predictive power of building permit growth volatility persists after conditioning on corporate and household leverage and debt service ratios, which the authors argue makes it independent of the credit cycle, and on firms' plant-network exposure to localized physical risks such as natural disasters.
  3. Cities and states with more elastic housing supply predict financial market downturns at 12-month horizons, which the authors use to construct trading strategies hedging against overbuilding risk.

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  • The Great Mortgaging: Housing Finance, Crises, and Business Cycles — In advanced economies, about two-thirds of bank activity now involves channeling savings into household real estate purchases, so banks' business model resembles that of real estate funds. The authors find non-mortgage lending has held steady relative to GDP while mortgage booms have been a key source of post-war financial instability, with busts followed by slower growth even absent crises.
  • The Price of Housing in the United States — Real housing price appreciation in the United States has varied widely across regions, with West Coast cities rising earlier while prices in other regions remained comparable in real terms to decades earlier. The authors find essentially no relationship between real price growth and zoning restrictiveness in the earliest period studied, and progressively steeper gradients in later periods.
Showing 43 database articles primarily about Housing