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Mortgage Contract Decisions and Mortgage Distress: Family and Financial Life-Cycle Factors

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Listed:
  • Frank P. Stafford

    (University of Michigan)

  • Elena Gouskova

    (University of Michigan)

Abstract

The U.S. economy experienced a dramatic rise in the price of owner occupied housing during 1999-2007, and then a precipitous decline from 2007 through 2009. In this paper we utilize data from the Panel Study of Income Dynamics (PSID) during 1999-2009 to study first the factors and borrowing decisions which were related to the run-up and then to see how these diverse positions in owner-occupied housing related to the subsequent difficulties and mortgage distress as of 2009. Our research shows that much of the rise and subsequent difficulties were concentrated among younger and less educated homeowners, and that the difficulties were also concentrated in selected real estate markets where home owners were allocating a substantial share of their income to debt service and other home related outlays such as taxes, utilities, and insurance. This pattern of high costs to support a housing position is interpreted as the result of a speculative price run-up supported by the joint decisions of the homeowners and their lenders. In this process the older population took on more mortgage debt than in prior years and may now have less capacity to support help to other adult family members living outside the home.

Suggested Citation

  • Frank P. Stafford & Elena Gouskova, 2010. "Mortgage Contract Decisions and Mortgage Distress: Family and Financial Life-Cycle Factors," Working Papers wp225, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp225
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    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp225.pdf
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    References listed on IDEAS

    as
    1. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942, Decembrie.
    2. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
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    Cited by:

    1. Hyrum Smith & Michael Finke & Sandra Huston, 2012. "Financial Sophistication and Housing Leverage Among Older Households," Journal of Family and Economic Issues, Springer, vol. 33(3), pages 315-327, September.
    2. Jing Jian Xiao & Rui Yao, 2011. "Debt Holding and Burden by Family Structure in 1989-2007," NFI Working Papers 2011-WP-04, Indiana State University, Scott College of Business, Networks Financial Institute.
    3. Thomas Bridges & Frank Stafford, 2012. "At the Corner of Main and Wall Street: Family Pension Responses to Liquidity Change and Perceived Returns," Working Papers wp282, University of Michigan, Michigan Retirement Research Center.
    4. Rachel Ong ViforJ & William A.V. Clark & Susan J. Smith & Gavin A. Wood & William Lisowski & N.T. Khuong Truong & Melek Cigdem, 2021. "Tenure transitions at the edges of ownership: Reinforcing or challenging the status quo?," Environment and Planning A, , vol. 53(8), pages 1993-2011, November.

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