Hutchins Roundup: Mortgages, Hiring & More

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Research this week Hutchins roundup As it turns out, mortgage rates in 2020 did not fall as much as interest rates, high unemployment increases hiring costs for companies, and more.

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While 2020 recorded the lowest mortgage rates for borrowers in decades, rising intermediary markups have prevented mortgage rates from falling as much as Treasury rates., find Andreas Fuster of the Swiss National Bank and coauthors. They say, “Hiring new workers and expansion of production capacity were more difficult than usual, “resulting in higher margins even higher than usual when demand for mortgages rises. In addition, they found that fintech lenders, whose tech operations faced less friction from the pandemic, gained market share in complex and time-consuming mortgages. The authors also find that government-backed loan guarantees and quantitative easing by the Federal Reserve helped bolster the supply of loans in the mortgage market, keeping rates from rising for typical mortgages despite the higher risk of borrower default due to the pandemic. However, government guarantees cannot eliminate all risks for creditors. In the mortgage market, lending to high-risk borrowers decreased.

Using data on both employed and unemployed from the Consumer Expectations Survey, Niklas Engbom of New York University concludes that changes in job search patterns during a recession drive up the cost of hiring and discourage job creation. In particular, he believes that unemployed people apply for work 10 times more than salaried workers, but their probability of getting a job is less than half as much as one application Unemployed people are also less selective about the jobs they apply for, which requires more time and resources from firms to find a suitable candidate from a large pool of job seekers. As the cost of hiring increases, fewer jobs are created and unemployment remains high. While the application fee may deter low-quality applicants, the author believes that firms may be concerned that fees may prevent suitable low-income applicants from applying.

Using a new study of inflationary expectations of US companies over time, Yuri Gorodnichenko and Bernardo Candia of the University of California at Berkeley and Olivier Coibion ​​of the University of Texas at Austin found that inflation expectations of US firms are poorly anchored and that firms’ decisions are independent of monetary policy When it comes to inflation expectations, firms behave more like households than professional forecasters. Like households, firms tend to forecast inflation above the current trend. There is also less consensus among firms about future inflation – however, most predict long-term inflation rates will be significantly different from the Federal Reserve’s inflation target of 2%. The authors believe that the lack of attention of US companies to inflation dynamics is consistent with data from other developed countries. “The long history of low and stable inflation in most advanced economies has removed much of the stimulus that companies may have been forced to pay a lot of attention to monetary policy and inflation,” the authors conclude.

S&P CoreLogic Case-Shiller Indices from 1988 to 2021

Source: S&P Global.

“One of the things that was very interesting about this pandemic, and was actually evident very early on, is that demand reacted much faster to the market than supply, and it took time for supply to catch up. We see this in different ways, whether it’s semiconductors or timber for housing or even home appliances and their availability for families looking to modernize their homes. The question is not whether the imbalance that occurs initially exists, but whether it persists over time.says Raphael Bostic, president of the Atlanta Federal Reserve

And as I spoke with business leaders, they said that a lot of these things are not expected to actually last for a long period. The dynamics we are seeing now is not a new steady state dynamic. So there is cause for concern. But I want to emphasize [that] therefore we constantly communicate with people. I want to know if their views on this are changing, because if they change, it will force me to rethink our policies. “

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