Foreclosures, House Prices, and the Real Economy
Atif R. Mian
Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER
University of Chicago - Booth School of Business; NBER
University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)
May 25, 2012
Chicago Booth Research Paper No. 13-41
Fama-Miller Working Paper
States without a judicial requirement for foreclosures are twice as likely to foreclose on delinquent homeowners. Comparing zip codes close to state borders with differing foreclosure laws, we show that foreclosure propensity and housing inventory jump discretely as one enters non-judicial states. There is no jump in other homeowner attributes such as credit scores, income, or education levels. The increase in foreclosure rates in non-judicial states persists for at least five years. Using the judicial / non-judicial law as an instrument for foreclosures, we show that foreclosures lead to a large decline in house prices, residential investment, and consumer demand.
Number of Pages in PDF File: 68
Keywords: Foreclosures, House Prices, Durable Consumption, Residential Investment, Auto Sales, Mortgage Defaults, Amplificationworking papers series
Date posted: December 9, 2010 ; Last revised: April 19, 2013
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