A Quantitative Analysis of the US Housing and Mortgage Markets and the Foreclosure Crisis

Satyajit Chatterjee () and Burcu Eyigungor

Review of Economic Dynamics, 2015, vol. 18, issue 2, 165-184

Abstract: 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 house price decline while the foreclosure delays account for bulk 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. (Copyright: Elsevier)

Keywords: Leverage; Foreclosures; Mortgage crisis (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 G21 H24 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (80)

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Working Paper: A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis (2011)
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DOI: 10.1016/j.red.2015.02.004

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