Archive for the ‘Federal Reserve Bank of Cleveland’ Category

The Impact of Missed Payments and Foreclosures on Credit Scores

November 11, 2014 Comments off

The Impact of Missed Payments and Foreclosures on Credit Scores (PDF)
Source: Federal Reserve Bank of Cleveland

This paper debunks the common perception that “foreclosure will ruin your credit score.” Using individual-level data from a credit bureau matched with loan-level mortgage data, it is estimated that the very first missed mortgage payment leads to the biggest reduction in credit scores. The effects of subsequent loan impairments are increasingly muted. Post-delinquency foreclosures have only a minimal effect on credit scores. Moreover, credit scores improve substantially a year after borrowers experience 90-day delinquency or foreclosure. The data supports one possible explanation of this improvement: the absence of mortgage payments relaxes the borrowers’ budget constraint, allowing them to restore other forms of credit.

Job Search Before and After the Great Recession

September 3, 2014 Comments off

Job Search Before and After the Great Recession
Source: Federal Reserve Bank of Cleveland

Since the onset of the Great Recession, unemployment rates have been high and job-finding rates have been low. These persistent trends raise concerns that unemployed workers may have become discouraged by poor job prospects. To begin understanding the job searching behavior of the unemployed, we examine data from the American Time Use Survey (ATUS) and find that a greater proportion of the unemployed are spending time searching for a job after the Great Recession than before. We also find important differences in job search time by educational attainment, age, and gender—including decreases in search time for some groups.

To compare the amount of time the unemployed spend on their job search before and after the recession, we analyzed data from the ATUS, which asks respondents how much time they spent on various activities the previous day. Activities classified as job searching include sending out resumes, conducting interviews, commuting, asking for information, and looking for information on the internet or in the newspaper. We compared ATUS data on job searching before and after the Great Recession, combining the years 2003 to 2007 for the pre-recession period and the years 2008 to 2012 for the post-recession period.

As we would expect, the proportion of unemployed individuals who spent some time on an average day searching for a job increased from 20 percent to 24 percent after the recession. However, and perhaps surprisingly, among those unemployed who did search, the average time spent on job search looked very similar in the five years on either side of the Great Recession.

A College Education Saddles Young Households with Debt, but Still Pays Off

August 7, 2014 Comments off

A College Education Saddles Young Households with Debt, but Still Pays Off
Source: Federal Reserve Bank of Cleveland

Many parents believe their children must get a college degree—especially if they want to have at least as comfortable a lifestyle as their parents had; yet the price of a college degree has been rising rapidly over the past three decades. As costs have risen, more and more students and their families have turned to education loans for financing. This trend, combined with the strong propensity for households to form among individuals of similar education levels, has led to much larger student loan debt burdens for households headed by young adults who have attended college. In the 1989 Survey of Consumer Finances, real (inflation-adjusted) average student loan debt for young households (those headed by someone between 22 and 29 years of age) with a college degree was $3,420. In 2010, the same average was $16,714, nearly a 400 percent increase. For households with some college, but without a college degree, average student loan debt rose about 270 percent.

Which Poor Neighborhoods Experienced Income Growth in Recent Decades?

April 18, 2014 Comments off

Which Poor Neighborhoods Experienced Income Growth in Recent Decades?
Source: Federal Reserve Bank of Cleveland

Why has average income grown in some poor neighborhoods over the past 30 years and not in others? We explore that question and find that low-income neighborhoods that experienced large improvements in income over the past three decades tended to be located in large, densely populated metro areas that grew in income and population. Residential sorting—changes in population and demographics within neighborhoods—could help to explain this relationship.

Gentrification and Financial Health

November 22, 2013 Comments off

Gentrification and Financial Health
Source: Federal Reserve Bank of Cleveland

Gentrification is a form of neighborhood change. While it does not have a precise definition, it is commonly associated with an increase in income, rising home prices or rents, and sometimes with changes in the occupational mix and educational level of neighborhood residents.

Gentrification is sometimes viewed as a bad thing. People claim that it is detrimental to the original residents of the gentrifying neighborhood. However, a look at the data suggests that gentrification is actually beneficial to the financial health of the original residents. From a financial perspective, it is better to be a resident of a low-price neighborhood that is gentrifying than one that is not. This is true whether residents of the gentrifying neighborhood own homes or do not and whether or not they move out of the neighborhood. This is interesting because one might expect renters to be hurt more by gentrification, and one might also be concerned that people who moved out of the neighborhood did so because they were financially strained.

In this article I consider a measure of gentrification based on neighborhood home values, and examine how this measure correlates with changes in credit scores and debt delinquency measures in gentrifying neighborhoods.

A Decade of Hard Times in Places that Rely on Manufacturing Employment

February 13, 2013 Comments off

A Decade of Hard Times in Places that Rely on Manufacturing Employment

Source: Federal Reserve Bank of Cleveland

While the fraction of people employed in the manufacturing sector has declined greatly in the United States over time, manufacturing still makes up a large fraction of employment in some parts of the country. One way to see this is by looking at how the share of manufacturing employment is distributed across counties. The right tail of the distribution shows a set of counties where manufacturing makes up a much higher share of employment than the average for the country (which is 11 percent).

Household Formation and the Great Recession

August 29, 2012 Comments off

Household Formation and the Great Recession
Source: Federal Reserve Bank of Cleveland

During the Great Recession, the rate at which Americans formed households fell sharply. Though the rate has recently picked up, it isn’t fast enough to make up for the shortfall in household formation that occurred over the last several years. An analysis of recent household formation patterns shows that the greatest shortfall occurred among young adults and that it is related to weak economic conditions. Housing choices have shifted as well, with a greater proportion of young households living in rental housing rather than owner-occupied homes.