The Unforeseen Impact: IPOs and Worsening Performance in Local Residential Mortgage Markets

Jing Yang, Xinrong Li and Erin Liu

ERES from European Real Estate Society (ERES)

Abstract: This study examines the potential linkages between corporate public listing activities and the performance of local residential mortgage markets, using a dataset of 1,100 IPOs in the U.S. from 2000 to 2018. While existing literature suggests that IPOs may generate positive spillover effects, such as stimulating local businesses and housing markets, we find an unexpected negative correlation between IPO activity and the average performance (particularly foreclosure rates and 90-day delinquency rates) of local mortgage loans. We investigate various potential explanations for this relationship, and find little evidence to support the hypothesis that it is driven by rising housing costs following IPOs or by wealthier borrowers exiting the mortgage market due to welfare changes after IPOs. However, we do find that certain IPO variables are positively associated with the median OLTV ratio of local mortgage loans. Additionally, the negative correlation between IPOs and loan performance is stronger when excluding MSAs that are home to the headquarters of largest mortgage lenders that have nationwide operations. Our findings suggest a potential “counter-cyclical” shift in lending quality, similar to trends identified in banking literature, where lenders may relax lending standards or reduce the quality of borrower assessments during business upswings following IPOs.

Keywords: Capital market; counter-cyclical; Initial public offering; Mortgage (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2025-01-01
New Economics Papers: this item is included in nep-ure
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