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The Slowdown in Residential Investment and Future Prospects

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  • Edward S. Knotek
  • Saeed Zaman

Abstract

Using a statistical model, we find that three factors explain most of the decline in residential investment at the end of 2013 and the beginning of 2014: the increase in mortgage rates since early 2013, the unusually cold winter, and a modest tightening of lending standards in the residential mortgage market. Future prospects for residential investment depend heavily on mortgage rates. A return to normal weather and easing lending standards would boost activity, but even moderate increases in mortgage rates through the end of next year could restrain residential investment going forward.

Suggested Citation

  • Edward S. Knotek & Saeed Zaman, 2014. "The Slowdown in Residential Investment and Future Prospects," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
  • Handle: RePEc:fip:fedcec:00014
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    References listed on IDEAS

    as
    1. Gary M. Koop, 2013. "Forecasting with Medium and Large Bayesian VARS," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 177-203, March.
    2. Todd E. Clark & Saeed Zaman, 2013. "Forecasting implications of the recent decline in inflation," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
    3. Kozicki, Sharon & Tinsley, P. A., 2001. "Term structure views of monetary policy under alternative models of agent expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 149-184, January.
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