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The Mortgage Market Meltdown and House Prices

Author

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  • Hubbard R. Glenn

    (Columbia University)

  • Mayer Christopher J

    (Columbia University)

Abstract

This paper argues that the U.S. mortgage debacle must be analyzed in the broader setting of global real estate markets. Recent U.S. home price growth closely tracked increases in other developed economies. The analysis distinguishes among market regions in terms of supply elasticity and localized transactions-costs. A series of user-cost models are presented which imply that interest rate fluctuations must figure prominently in any explanation of movements in price/rent ratios. National factors such as the expansion of subprime credit must also be accounted for. The paper concludes with policy prescriptions addressing rapid price declines and elevated interest-rate spreads. We argue that the federal government should play a leading role in helping to reduce interest rates on new mortgages and cushion against underwriting losses on the existing balance sheets of lenders.

Suggested Citation

  • Hubbard R. Glenn & Mayer Christopher J, 2009. "The Mortgage Market Meltdown and House Prices," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(3), pages 1-47, March.
    • Handle: RePEc:bpj:bejeap:v:9:y:2009:i:3:n:8
    DOI: 10.2202/1935-1682.2223
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    References listed on IDEAS

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    1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
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