Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate

Robert Shiller, Karl Case and Allan N. Weiss
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Allan N. Weiss: Case Shiller Weiss, Inc.

No 1098, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Evidence is shown, using US foreclosure data by state 1975-93, that periods of high default rates on home mortgages strongly tend to follow real estate price declines or interruptions in real estate price increase. The relation between price decline and foreclosure rates is modelled using a distributed lag. Using this model, holders of residential mortgage portfolios could hedge some of the risk of default by taking positions in futures or options markets for residential real estate prices, were such markets to be established.

Pages: 21 pages
Date: 1995-05
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Citations: View citations in EconPapers (11)

Published in Journal of Housing Research (1996), 7(2): 243-258

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Working Paper: Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate (1995)
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