 How Did the US Housing Slump Begin? The Role of the 2005 Bankruptcy ReformDilip Mookherjee and Ulf von Lilienfeld-Toal No WP2011-033, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics Abstract: Most analyses of the recent ¯nancial crisis in the US focus on the consequences of the dramatic slump in housing prices that started in the mid-2000s, which led to rising mortgage defaults, shrinking home equity credit and liquidity in the banking system. Yet these accounts do not explain what caused the reversal of housing price growth in the ¯rst place. This paper argues that the passage of the 2005 Bankruptcy Reform Act (BAPCPA) contributed signi¯cantly to the reversal. The reform generated negative wealth e®ects for a category of homeowners, lowering prices of their homes, which spread via a process of contagion to the prices of other homes. Evidence consistent with this hypothesis is provided: changes in housing prices and mortgage interest rates at the MSA level following the reform were significantly correlated with BAPCPA-exposure. The results are robust to controls for the size of the pre-2005 price growth, local unemployment rates, rates of new home construction and home vacancies, apart from MSA, house and year dummies. Pages: 55 pages There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bos:wpaper:wp2011-033 Access Statistics for this paper More papers in Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics Contact information at EDIRC. |
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