Mortgages and the baby boom
Did the introduction of the long-term, fixed-rate home loan cause births to spike?
Tons of people sent me this academic study when it was published last month: Did the Modern Mortgage Set the Stage for the U.S. Baby Boom?
Was it written just for me? It sure seemed that way.
The authors, Lisa Dettling and Melissa Schettini Kearney, connect the mortgage to the birth of three million people between 1935 and 1957. They found that some 10% of the births during the baby boom stem from the standardization of long-term, fixed-rate home loans during that era.
People tend to think the baby boom resulted from the post-World War II economic boom. But the birth rate actually began to climb in the mid-1930s, before the war even started. So, what happened in the mid-1930s?
For one, the Federal Housing Administration came into being, and the agency ushered in the type of mortgage we now take for granted.
Before that, loans were typically for five- or 10-year terms, with variable interest rates. The bank would let you borrow no more than half of the home price. The entire balance was due at maturity, so when the loan matured, you would either have to pay it off or find a way to refinance, which was difficult, according to a 2005 paper by Richard Green and Susan Wachter.
These products were risky for home buyers, and they didn’t hold up especially well during the Great Depression. When home prices tanked, people fell behind on their mortgages and a wave of foreclosures followed.
That crisis prompted the federal government to create FHA in 1936, which provided insurance to protect the owners of the loans. FHA set loan terms at 20 years, then raised them to 30 years in 1948. The loans were repaid over time, rather than when they came due. Down payments were smaller.
The borrower-friendly terms were born out of the crisis, engineered to solve the prior era’s problems. But they also made it easier to become a homeowner, and came to be seen as a tool to promote buying.
So what did people do after using these mortgages to buy homes? They had babies, apparently.
Dettling and Kearney looked state-by-state at loans backed by the Federal Housing Administration and the Department of Veterans Affairs, which was formed later as part of the GI Bill. They found that in states and years where more loans were extended, there were more births the following year. First the mortgage was issued to buy a house, then the buyers had kids.
The new mortgages promoted prosperity and population growth. But they didn’t help everyone. FHA and VA loans discriminated based on race, since they required appraisals that took into account each home’s neighborhood. Black neighborhoods were considered risky, and marked red on maps. We now call this redlining. As a result, the rise of the mortgage had no effect on birth rates for women who weren’t white, the researchers found.
Some other things I’ve been thinking about:
Giant white houses with the jet black window trim—the apparent architectural style du jour, according to Slate. Once you start spotting them around your neighborhood, you’ll see them everywhere.
How it’s getting more difficult for real-estate agents to sell those giant white houses in the cooling market, particularly in once hot areas like Florida and Texas. One sign of the times: Warren Buffett’s real-estate brokerage is in talks to sell itself to Compass, as my WSJ colleagues reported.
But! In Silicon Valley, the housing market never cools. One agent there told Bloomberg: “When we write an offer, we don’t look at the asking price,” adding, “It’s meaningless.”
Give me a shout any time at ben.eisen@wsj.com.