Joint Dynamics of House Prices and Foreclosures
Yavuz Arslan (),
Bulent Guler () and
Temel Taskin ()
Journal of Money, Credit and Banking, 2015, vol. 47, issue S1, 133-169
This paper studies the joint transitional dynamics of the foreclosures and house prices in a standard life‐cycle incomplete markets model with housing and a realistic long‐term mortgage structure. We calibrate our model to match several long‐term features of the U.S. housing market, and analyze the effects of several unexpected and permanent shocks on the house price and the foreclosure rate both across the steady states and along the transition between the steady states. We examine permanent, unexpected shocks to the risk‐free interest rate, the minimum down‐payment ratio, and unemployment. During the transition, these shocks create large movements in house prices. More importantly, the foreclosure dynamics are quite significant along the transition compared to the steady‐state changes, and there are strong feedbacks between foreclosures and house prices. We assess the effects of a temporary reduction in the risk‐free interest rate, which has moderate effects on house prices but little effect on foreclosure dynamics. We also study the effects of an ex ante macroprudential policy, which establishes a minimum down‐payment requirement at a higher threshold. Such a macroprudential policy helps substantially stabilize both house prices and foreclosures.
References: Add references at CitEc
Citations: View citations in EconPapers (20) Track citations by RSS feed
Downloads: (external link)
Working Paper: Joint Dynamics of House Prices and Foreclosures (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:47:y:2015:i:s1:p:133-169
Access Statistics for this article
Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West
More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().