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Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications

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Abstract

In this paper, we use two comprehensive micro datasets to study the evolution of the distribution of mortgage debt during the 2000s housing boom. We show that the allocation of mortgage debt remained stable, as did the distribution of real estate assets. We propose that any theory of the boom must replicate this fact. Using a general equilibrium model, we show that this requires two elements: (1) an exogenous shock to the economy that increases expected house price growth or, alternatively, reduces interest rates and (2) financial markets that endogenously relax constraints in response to the shock. The role played by subprime mortgage debt provides additional empirical evidence that this narrative mirrors reality.

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  • Christopher L. Foote & Lara Loewenstein & Paul S. Willen, 2019. "Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications," Working Papers 19-19, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:191900
    DOI: 10.26509/frbc-wp-201919
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    JEL classification:

    • D3 - Microeconomics - - Distribution
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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