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

Christopher Foote, Lara Loewenstein and Paul Willen

The Review of Economic Studies, 2021, vol. 88, issue 1, 229-259

Abstract: In this paper, we use two comprehensive micro-data sets to study how the distribution of mortgage debt evolved during the 2000s housing boom. We show that the allocation of mortgage debt across the income distribution remained stable, as did the allocation of real estate assets. Any theory of the boom must replicate these facts, and a general equilibrium model shows that doing so requires two elements: (1) an exogenous shock that increases expected house price growth or, alternatively, reduces interest rates and (2) financial markets that endogenously relax borrowing constraints in response to the shock. Empirically, the endogenous relaxation of constraints was largely accomplished with subprime lending, which allowed the mortgage debt of low-income households to increase at the same rate as that of high-income households.

Keywords: Mortgage debt; Housing boom; Foreclosure crisis; Real estate; D12; D14; E03; G21; R21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications (2019)
Working Paper: Cross-sectional patterns of mortgage debt during the housing boom: evidence and implications (2016)
Working Paper: Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:1:p:229-259.

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