Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy
AbstractThe authors construct a quantitative equilibrium model of the housing market in which an unanticipated increase in the supply of housing triggers default mortgages via its effect on house prices. The decline in house prices creates an incentive to increase the consumption of housing space, but leverage makes it costly for homeowners to sell their homes and buy bigger ones (they must absorb large capital losses). Instead, leveraged households find it advantageous to default and rent housing space. Since renters demand less housing space than homeowners, foreclosures are a negative force affecting house prices. The authors explore the possible effects of the government's foreclosure prevention policy in their model. They find that the policy can temporarily reduce foreclosures and shore up house prices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 09-22.
Date of creation: 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-31 (All new papers)
- NEP-DGE-2009-10-31 (Dynamic General Equilibrium)
- NEP-REG-2009-10-31 (Regulation)
- NEP-URE-2009-10-31 (Urban & Real Estate Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Leonardo Martinez & Juan Carlos Hatchondo & Juan M. Sanchez, 2012.
IMF Working Papers
12/26, International Monetary Fund.
- Dirk Krueger, 2012.
"Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises,"
2012 Meeting Papers
102, Society for Economic Dynamics.
- Karsten Jeske & Dirk Krueger & Kurt Mitman, 2011. "Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises," PIER Working Paper Archive 11-034, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Karsten Jeske & Dirk Krueger & Kurt Mitman, 2011. "Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises," NBER Working Papers 17537, National Bureau of Economic Research, Inc.
- Jeske, Karsten & Krueger, Dirk & Mitman, Kurt, 2011. "Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises," CEPR Discussion Papers 8624, C.E.P.R. Discussion Papers.
- Kyle F. Herkenhoff & Lee E. Ohanian, 2011. "Labor Market Dysfunction During the Great Recession," NBER Working Papers 17313, National Bureau of Economic Research, Inc.
- Tim Landvoigt & Monika Piazzesi & Martin Schneider, 2012. "The Housing Market(s) of San Diego," NBER Working Papers 17723, National Bureau of Economic Research, Inc.
- Børsum, Øystein, 2010. "Contagious Mortgage Default," Memorandum 10/2010, Oslo University, Department of Economics.
- Satyajit Chatterjee, 2010. "De-leveraging and the financial accelerator: how Wall Street can shock main street," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 1-8.
- John Y. Campbell & João F. Cocco, 2011. "A Model of Mortgage Default," NBER Working Papers 17516, National Bureau of Economic Research, Inc.
- Shaofeng Xu, 2013. "An Equilibrium Analysis of the Rise in House Prices and Mortgage Debt," Working Papers 13-9, Bank of Canada.
- Kyle F. Herkenhoff & Lee Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers 2012-017, Federal Reserve Bank of St. Louis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).
If references are entirely missing, you can add them using this form.