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)
January 31, 2014
Fama-Miller Working Paper
Chicago Booth Research Paper No. 13-41
Kreisman Working Papers Series in Housing Law and Policy No. 6
From 2007 to 2009, states without a judicial requirement for foreclosures were more than 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 jumped discretely as one entered non-judicial states. There is no jump in other homeowner attributes such as credit scores, income, or education levels. Using state judicial requirement as an instrument for foreclosures, we show that foreclosures led to a large decline in house prices, residential investment, and consumer demand from 2007 to 2009. As foreclosures subsided from 2011 to 2013, the difference between foreclosure rates in non-judicial and judicial requirement states shrank and we find evidence of a stronger recovery in non-judicial states.
Number of Pages in PDF File: 59
Keywords: Foreclosures, House Prices, Durable Consumption, Residential Investment, Auto Sales, Mortgage Defaults, Amplification
Date posted: December 9, 2010 ; Last revised: January 8, 2015
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