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A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis

  • Satyajit Chatterjee
  • Burcu Eyigungor

The authors construct a quantitative equilibrium model of the housing sector that accounts for the homeownership rate, the average foreclosure rate, and the distribution of home-equity ratios across homeowners prior to the recent boom and bust in the housing market. They analyze the key mechanisms that account for these facts, including the preferential tax treatment of housing and in ation. The authors then use the model to gain a deeper understanding of the recent housing and mortgage crisis by studying the consequence of an unanticipated increase in the supply of housing (overbuilding shock). They show that the model can account for the observed decline in house prices and much of the increase in the foreclosure rate if two additional forces are taken into account: (i) the lengthening of the time to complete a foreclosure (during which a defaulter can stay rent-free in his house) and (ii) the tightening of credit constraints in the market for new mortgages.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-26.

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Date of creation: 2011
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Handle: RePEc:fip:fedpwp:11-26
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  1. Matthew Chambers & Carlos Garriga, 2005. "Accounting for Changes in the Homeownership Rate," Computing in Economics and Finance 2005 304, Society for Computational Economics.
  2. Narayana Kocherlakota & Cristina Arellano, 2008. "Internal Debt Crises and Sovereign Defaults," 2008 Meeting Papers 139, Society for Economic Dynamics.
  3. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April.
  4. Matteo Iacoviello & Marina Pavan, 2011. "Housing and debt over the life cycle and over the business cycle," International Finance Discussion Papers 1032, Board of Governors of the Federal Reserve System (U.S.).
  5. James E Mcnulty, 2009. "The Long-run Demand for Housing, the Housing Glut, and the Implications for the Financial Crisis," Business Economics, Palgrave Macmillan, vol. 44(4), pages 206-215, October.
  6. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  7. Karsten Jeske & Dirk Krueger & Kurt Mitman, 2011. "Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises," PIER Working Paper Archive 11-034, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Bulent Guler, 2010. "Innovations in Information Technology and the Mortgage Market," 2010 Meeting Papers 856, Society for Economic Dynamics.
  9. François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research.
  10. José-Víctor Ríos-Rull & Virginia Sánchez-Marcos, 2008. "An Aggregate Economy with Different Size Houses," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 705-714, 04-05.
  11. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  12. Makoto Nakajima, 2010. "Optimal capital income taxation with housing," Working Papers 10-11, Federal Reserve Bank of Philadelphia.
  13. Satyajit Chatterjee & Burcu Eyigungor, 2012. "Maturity, Indebtedness, and Default Risk," American Economic Review, American Economic Association, vol. 102(6), pages 2674-99, October.
  14. Antonia Díaz & Maria Jose Luengo-Prado, 2006. "The Wealth Distribution With Durable Goods," Economics Working Papers we067027, Universidad Carlos III, Departamento de Economía.
  15. James D. Shilling & John D. Benjamin & C.F. Sirmans, 1990. "Estimating Net Realizable Value for Distressed Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 129-140.
  16. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
  17. 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.
  18. Roger G. Ibbotson & Peng Chen, 2003. "Long-Run Stock Returns: Participating in the Real Economy," Yale School of Management Working Papers ysm354, Yale School of Management.
  19. 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.).
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