Borrower Risk and Housing Price Appreciation

Darren K. Hayunga (), R. Kelley Pace () and Shuang Zhu ()
Additional contact information
Darren K. Hayunga: University of Georgia
R. Kelley Pace: Louisiana State University
Shuang Zhu: Kansas State University

The Journal of Real Estate Finance and Economics, 2019, vol. 58, issue 4, No 2, 544-566

Abstract: Abstract Maintenance and improvements affect house values and thus the observed pecuniary return. Whether due to lack of liquidity or the presence of strategic incentives, some borrowers have a higher probability of default and this could lead to lower maintenance and investment in the property. We test this hypothesis using a sample of properties on which we have repeat sales and mortgage information. We find that the predicted probability of default at the time of the original purchase significantly reduces subsequent observed pecuniary return. For instance, an increase in the probability of default from 22% to 32% leads to an 0.5% reduction in appreciation per year. Because the future house price varies with borrower risk, we examine many simulated scenarios to analyze the implications of the findings. From these scenarios, we observe that the highest risk borrowers can experience approximately 3% less appreciation per year than the lowest risk borrowers.

Keywords: House appreciation; Probability of default (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s11146-018-9669-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:58:y:2019:i:4:d:10.1007_s11146-018-9669-9

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

DOI: 10.1007/s11146-018-9669-9

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().