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A Quantitative Analysis of the US Housing and Mortgage Markets and the Mortgage Crisis

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  • Satyajit Chatterjee

    (Federal Reserve Bank of Philadelphia)

  • Burcu Eyigungor

    (Federal Reserve Bank of Philadelphia)

Abstract

We construct a quantitative equilibrium model that accounts for the salient features of the US housing market, namely, the homeownership rate, the average foreclosure rate prior to the crisis and the distribution of home-equity ratios across homeowners. Given this steady state, we examine the consequences of a 3 percent unexpected increase in the supply of housing on house prices and foreclosures. We analyze the impact of the tax code, namely the the fact that the implicit rental income from housing is not taxed and that the mortgage interest payment is tax deductible, for the steady state of the model as well as for the impact of the unanticipated supply shock. We show that the model is able to account for the observed decline in house prices with a modest increase in the cost of new mortgages following the shock (crisis) and predicts a large increase in foreclosures.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1109.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1109

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  1. V. Sanchez-Marcos & J.V.Rios-Rull, 2005. "Aggregate Shocks and the Volatility of House Prices," 2005 Meeting Papers 648, Society for Economic Dynamics.
  2. Yoshiro Miwa & Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2004. "Accounting for Changes in the Homeownership Rate," CIRJE F-Series CIRJE-F-312, CIRJE, Faculty of Economics, University of Tokyo.
  3. Vikrant Vig & Amit Seru & Tomasz Piskorski, 2009. "Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis," 2009 Meeting Papers 1169, Society for Economic Dynamics.
  4. Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
  5. Bulent Guler, 2010. "Innovations in Information Technology and the Mortgage Market," 2010 Meeting Papers 856, Society for Economic Dynamics.
  6. Anthony Pennington-Cross, 2006. "The Value of Foreclosed Property," Journal of Real Estate Research, American Real Estate Society, vol. 28(2), pages 193-214.
  7. Joseph Gruber & Robert Martin, 2003. "Precautionary savings and the wealth distribution with illiquid durables," International Finance Discussion Papers 773, Board of Governors of the Federal Reserve System (U.S.).
  8. Christopher L. Foote & Kristopher S. Gerardi & Lorenz Goette & Paul S. Willen, 2009. "Reducing foreclosures," Public Policy Discussion Paper 09-2, Federal Reserve Bank of Boston.
  9. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
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