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The Subprime Crisis and House Price Appreciation


William N. Goetzmann


Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Liang Peng


University of Colorado at Boulder

Jacqueline Yen


Yale School of Management

February 10, 2009

Yale ICF Working Paper No. 1340577

Abstract:     
This paper argues that econometric analysis of housing price indexes before 2006 generated forecasts of future long-term price growth and low estimated probabilities of extreme price decreases. These forecasts of future increases in home-loan collateral values may have affected both the demand and the supply of mortgages. Standard time series models using repeat-sales indices suggested that positive trends had a long half-life. Expectations based on such models supported expectations that could lead to an asset bubble.

Analysis of data from the HMDA loan data base and LoanPerformance at the MSA level and at the loan level substantiates both supply and demand effects of past price trends in housing markets, particularly with respect to subprime mortgage applications and approvals. At the MSA level, past home price increases are associated with higher subprime applications and loan to value ratios. Approval probability of subprime loans was not affected by higher loan to value ratios. At the loan level, the approval probability of subprime applications is also positively associated with past home price appreciation. These results differ for prime mortgages.

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Date posted: February 11, 2009  

Suggested Citation

Goetzmann, William N. and Peng , Liang and Yen, Jacqueline, The Subprime Crisis and House Price Appreciation (February 10, 2009). Yale ICF Working Paper No. 1340577. Available at SSRN: http://ssrn.com/abstract=1340577 or http://dx.doi.org/10.2139/ssrn.1340577

Contact Information

William N. Goetzmann (Contact Author)
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Liang Peng
University of Colorado at Boulder ( email )
419 UCB
Boulder, CO 80309-419
United States
303-492-8215 (Phone)
303-492-5962 (Fax)
HOME PAGE: http://leeds-faculty.colorado.edu/pengl/
Jacqueline Yen
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
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