Preventing Strategic Default
Brent T. White
University of Arizona - James E. Rogers College of Law
October 12, 2012
Arizona Journal of International and Comparative Law, 2012
Arizona Legal Studies Discussion Paper No. 12-18
Strategic default is driven in significant part by homebuyers’ expectations at the time of purchase. When individuals purchase homes primarily as investments, with the expectation of appreciation, they will experience marked anxiety when home prices decline. A significant number of homeowners will strategically default as a result. In addition, when investment rationales motivate the majority of homebuyers within a given market, housing booms will tend to be exaggerated and down markets will tend to be prolonged. Strategic default – and housing booms and busts – can be managed by setting homebuyers’ expectations ex ante at the time of purchase.
Number of Pages in PDF File: 29
Keywords: strategic default, anxiety, expectations, homebuyers
Date posted: May 30, 2012 ; Last revised: October 12, 2012
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