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Diminishing Margins: Housing Market Declines and Family Financial Responses

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  • Frank P. Stafford

    (University of Michigan)

  • Erik Hurst

    (University of Chicago)

  • Bing Chen

    (University of Michigan)

Abstract

We utilize data from the Panel Study of Income Dynamics (PSID) to study borrowing decisions and other factors related to the run-up in housing prices in 1999-2007, their precipitous decline in 2007-2009, and how they contributed to mortgage distress and foreclosures as of 2009-2011. Difficulties were concentrated in selected real estate markets where the Case Shiller home index declined more than 35% from 2007 to 2009. Often expecting further price appreciation or responding to a positive family labor market and income circumstance, homeowners, supported by their lenders, allocated too much of their family income to support house payments and put themselves in a risky position. The year of taking the original mortgage, the rate of decrease in the Case-Shiller home price index, household wealth, and labor market and disability status are substantial predictors of mortgage payment distress and foreclosure.

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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp276.

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Length: 34 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:mrr:papers:wp276

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  1. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 120-144, spring.
  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.
  3. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
  4. Erik Hurst & Ming Ching Luoh & Frank P. Stafford, 1998. "The Wealth Dynamics of American Families, 1984-94," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 267-338.
  5. Brahima Coulibaly & Geng Li, 2009. "Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 659-673.
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