The economic might over at the Federal Reserve Bank of San Francisco was recently applied to the subprime problem, in a research letter released late yesterday. The question at hand: Does a change in home price appreciation impact subprime default rates? I'll let that sink in a bit. Answer: Of course it does. That should have been the end of the "research" right there, but leave it to a group of economists to take a simple question and concoct a needlessly complex answer that tells us what most of us already knew. The conclusion of Mark Doms, Frederick Furlong, and John Krainer -- the economists on the case at the San Franscisco Fed?
Indeed, we show that markets that recently experienced greater house-price appreciation tended to have lower delinquency rates and smaller increases in delinquency rates. We also find that metropolitan areas where house prices decelerated the most in 2006 have experienced the largest increases in subprime delinquency rates.
Great work, there, guys. You needed to spend time plotting correlations and correcting for the influence of exogenous variables to figure that one out? I can't help but wonder if your work on monetary policy is nearly as insightful. Update: Mark Doms actually has some very interesting research in the works -- especially a working paper on innovation in mortgage markets -- but this current research note might be something he'll want to leave off of his CV.