A quantitative analysis of the u.s. housing and mortgage markets and the foreclosure crisis
Satyajit Chatterjee () and
Burcu Eyigungor ()
No 15-13, Working Papers from Federal Reserve Bank of Philadelphia
We present a model of long-duration collateralized debt with risk of default. Applied to the housing market, it can match the homeownership rate, the average foreclosure rate, and the lower tail of the distribution of home-equity ratios across homeowners prior to the recent crisis. We stress the role of favorable tax treatment of housing in matching these facts. We then use the model to account for the foreclosure crisis in terms of three shocks: overbuilding, financial frictions, and foreclosure delays. The financial friction shock accounts for much of the decline in house prices, while the foreclosure delays account for most of the rise in foreclosures. The scale of the foreclosure crisis might have been smaller if mortgage interest payments were not tax deductible. Temporarily higher inflation might have lowered the foreclosure rate as well.
Keywords: Leverage; Foreclosures; Mortgage crisis (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 G21 H24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
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Journal Article: A Quantitative Analysis of the US Housing and Mortgage Markets and the Foreclosure Crisis (2015)
Working Paper: A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis (2011)
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