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Negative equity and housing investment


  • Andrew F. Haughwout
  • Sarah Sutherland
  • Joseph Tracy


Housing is a depreciating asset. The rate of depreciation depends on the degree to which households engage in housing investments. Housing investment expenditures economy-wide are sizable, averaging 45 percent of the value of new home construction over the past twenty years. The housing bust and recession coincided with a significant decline in housing investment. Using Consumer Expenditure Survey data from 2007 to 2012, we find that negative equity households reduce their housing investments by roughly 75 percent. The large increase in negative equity due to declining housing prices during the housing bust resulted in a cumulative decline of housing investment expenditures from 2006 to 2010 of $51.2 billion.

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  • Andrew F. Haughwout & Sarah Sutherland & Joseph Tracy, 2013. "Negative equity and housing investment," Staff Reports 636, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:636

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    References listed on IDEAS

    1. Gyourko, Joseph & Saiz, Albert, 2004. "Reinvestment in the housing stock: the role of construction costs and the supply side," Journal of Urban Economics, Elsevier, vol. 55(2), pages 238-256, March.
    2. Joseph Gyourko & Joseph Tracy, 2006. "Using Home Maintenance and Repairs to Smooth Variable Earnings," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 736-747, November.
    3. Kristopher S. Gerardi & Eric Rosenblatt & Paul S. Willen & Vincent W. Yao, 2012. "Foreclosure externalities: some new evidence," Public Policy Discussion Paper 12-5, Federal Reserve Bank of Boston.
    4. Andrew Haughwout & Richard W. Peach & John Sporn & Joseph Tracy, 2012. "The Supply Side of the Housing Boom and Bust of the 2000s," NBER Chapters,in: Housing and the Financial Crisis, pages 69-104 National Bureau of Economic Research, Inc.
    5. repec:aea:aejpol:v:9:y:2017:i:4:p:167-91 is not listed on IDEAS
    6. Andrew F. Haughwout & James A. Orr & David Bedoll, 2008. "The price of land in the New York metropolitan area," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 14(Apr).
    7. Andreas Fuster & Paul S. Willen, 2017. "Payment Size, Negative Equity, and Mortgage Default," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 167-191, November.
    8. Andrew F. Haughwout & Richard Peach & Joseph Tracy, 2010. "The homeownership gap," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(May).
    9. Thomas P. Boehm & Keith R. Ihlanfeldt, 1986. "The Improvement Expenditures of Urban Homeowners: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(1), pages 48-60.
    10. Bogdon, Amy S., 1996. "Homeowner Renovation and Repair: The Decision to Hire Someone Else to Do the Project," Journal of Housing Economics, Elsevier, vol. 5(4), pages 323-350, December.
    11. Mendelsohn, Robert, 1977. "Empirical evidence on home improvements," Journal of Urban Economics, Elsevier, vol. 4(4), pages 459-468, October.
    12. Karen M. Pence, 2006. "Foreclosing on Opportunity: State Laws and Mortgage Credit," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 177-182, February.
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    Cited by:

    1. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, Elsevier.

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    Assets (Accounting) ; Depreciation ; Investments ; Housing - Finance ; Equity;

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