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House prices and subprime mortgage delinquencies

Author

Listed:
  • Mark Doms
  • Frederick T. Furlong
  • John Krainer

Abstract

In this Economic Letter, we explore how the pace of and change in house-price appreciation can affect the incentives and opportunities for borrowers in a market to avoid delinquencies and foreclosures. For instance, with likely gains in home equity in markets where house prices have risen significantly, a homeowner should have greater incentives and opportunities to keep a mortgage loan current. Indeed, we show that markets that recently experienced greater house-price appreciation tended to have lower delinquency rates and smaller increases in delinquency rates. We also find that metropolitan areas where house prices decelerated the most in 2006 have experienced the largest increases in subprime delinquency rates. One of several possible explanations for this relationship is that, in the face of sharp declines in the pace of house-price appreciation, some borrowers may have lowered their expectations about future appreciation rates, and, hence, the attractiveness of the investment component of homeownership also declined.

Suggested Citation

  • Mark Doms & Frederick T. Furlong & John Krainer, 2007. "House prices and subprime mortgage delinquencies," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun8.
  • Handle: RePEc:fip:fedfel:y:2007:i:jun8:n:2007-14
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    Citations

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    Cited by:

    1. Jeffrey P. Cohen & Cletus C. Coughlin & Vincent W. Yao, 2016. "Sales of Distressed Residential Property: What Have We Learned from Recent Research?," Review, Federal Reserve Bank of St. Louis, vol. 98(3), pages 159-188.
    2. Janet L. Yellen, 2008. "Credit, housing, commodities, and the economy," Speech 56, Federal Reserve Bank of San Francisco.
    3. Stein, Jerome L., 2010. "A tale of two debt crises: a stochastic optimal control analysis," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-24.
    4. Janet L. Yellen, 2008. "The financial markets, housing, and the economy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr18.
    5. Mark Doms & Frederick T. Furlong & John Krainer, 2007. "Subprime mortgage delinquency rates," Working Paper Series 2007-33, Federal Reserve Bank of San Francisco.
    6. Stefano Puddu & Andreas Waelchli, 2015. "TAF Effect on Liquidity Risk Exposure," IRENE Working Papers 15-07, IRENE Institute of Economic Research.

    More about this item

    Keywords

    Mortgage loans; Housing - Prices;

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