House price dynamics and mortgage defaults: the role of recourse

Damian S. Damianov, Xiangdong Wang and Cheng Yan

Regional Studies, 2025, vol. 59, issue 1, 2549592

Abstract: This paper investigates the relationship between house prices and mortgage defaults in recourse and non-recourse US metropolitan areas. The theoretical analysis shows that shocks to house price returns have a stronger effect on defaults in non-recourse markets than in recourse markets due to strategic default behaviour. Empirical evidence from a panel vector autoregressive (Panel VAR) model supports this prediction and, in addition, reveals a stronger house price response to defaults in non-recourse markets than predicted by the theoretical model. The findings highlight key differences in mortgage default dynamics across recourse and non-recourse markets, offering insights for households, lenders, policymakers and regulators.

Date: 2025
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DOI: 10.1080/00343404.2025.2549592

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