On November 13, The Urban Institute’s Housing Finance Policy Center hosted a conversation with Jim Stock, a member of the Council of Economic Advisers and a Senior Adviser to the President.
Stock discussed housing finance reform from a macroeconomic perspective. Specifically, elaborating on the need for the mortgage finance system to provide liquidity at reasonable rates during good and bad economic times. Stock referred to this property as cyclical resilience.
The basic idea of cyclical resilience is straightforward: even if the economy is in a downturn, and even if there are disruptions to financial markets, the housing finance system should still provide reasonably-priced mortgages to creditworthy borrowers. Otherwise, financial market shocks, such as sharp drops in prices of classes of assets, could result in reduced liquidity and could stall the real side of the economy through curtailed housing market activity. Stalling out the housing sector would in turn produce or exacerbate a broader economic downturn.
Moreover, housing sector contractions can particularly hit low- to middle-income communities, which are disproportionately dependent on the housing sector for employment and on home equity for savings. A cyclically resilient housing finance system provides a buffer between financial market disruptions and real economic activity.