Default, Mortgage Standards, and Housing Liquidity

Hongfei Sun, Chenggang Zhou and Allen Head ()
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Hongfei Sun: Queen's University
Chenggang Zhou: Queen's University

No 625, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: The influence of households' indebtedness on their house-selling decisions is studied in a tractable dynamic general equilibrium model with housing market search and defaultable long-term mortgages. In equilibrium, sellers' behavior varies significantly with their indebtedness. Specifically, both asking prices and time-to-sell increase with the relative size of sellers' outstanding mortgages. In turn, the liquidity of the housing market associated with equilibrium time-to-sell determines the mortgage standards offered by competitive banks. When calibrated to the U.S. economy the model generates, as observed, negative correlations over time between both house prices and time-to-sell with down-payment ratios.

Date: 2016
New Economics Papers: this item is included in nep-ban and nep-dge
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Citations: View citations in EconPapers (6)

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Working Paper: Default, Mortgage Standards And Housing Liquidity (2016)
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