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The subprime crisis and its role in the financial crisis

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  • Sanders, Anthony

Abstract

This paper discusses some of the key characteristics of the U.S. subprime mortgage boom and bust and discusses the causes, particularly related to the relationship between subprime mortgage defaults and housing prices. We observe that housing prices and mortgage defaults had distinctly localized trends, but those trends ceased by 2005 when several states studied in this paper (Arizona, California and Nevada) began to move together. Furthermore, we observe the seriously delinquent subprime mortgages increased much more rapidly than was anticipated by historically-based econometric models. As such, this paper offers a partial explanation for how financial institutions misunderstood the declining house prices and increasing subprime default.

Suggested Citation

  • Sanders, Anthony, 2008. "The subprime crisis and its role in the financial crisis," Journal of Housing Economics, Elsevier, vol. 17(4), pages 254-261, December.
    • Handle: RePEc:eee:jhouse:v:17:y:2008:i:4:p:254-261
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    References listed on IDEAS

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    1. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
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    3. Christopher L. Foote & Kristopher Gerardi & Lorenz Goette & Paul S. Willen, 2008. "Subprime facts: what (we think) we know about the subprime crisis and what we don’t," Public Policy Discussion Paper 08-2, Federal Reserve Bank of Boston.
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    5. Brent Ambrose & Anthony Sanders, 2004. "Legal Restrictions in Personal Loan Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 133-151, November.
    6. Howard Lax & Michael Manti & Paul Raca & Peter Zorn, 2004. "Subprime lending: An investigation of economic efficiency," Housing Policy Debate, Taylor & Francis Journals, vol. 15(3), pages 533-571.
    7. Patric H. Hendershott & John C. Weicher, 2002. "Forecasting Housing Markets: Lessons Learned," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(1), pages 1-11.
    8. Yuliya Demyanyk & Otto van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
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    Keywords

    Housing Subprime lending Defaults;

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