Diminishing Margins: Housing Market Declines and Family Financial Responses
Frank P. Stafford
University of Michigan at Ann Arbor - Department of Economics
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
University of Michigan, Department of Economics
December 1, 2012
Michigan Retirement Research Center Research Paper No. 2012-276
We utilize data from the Panel Study of Income Dynamics (PSID) to study borrowing decisions and other factors related to the run-up in housing prices in 1999-2007, their precipitous decline in 2007-2009, and how they contributed to mortgage distress and foreclosures as of 2009-2011. Difficulties were concentrated in selected real estate markets where the Case Shiller home index declined more than 35% from 2007 to 2009. Often expecting further price appreciation or responding to a positive family labor market and income circumstance, homeowners, supported by their lenders, allocated too much of their family income to support house payments and put themselves in a risky position. The year of taking the original mortgage, the rate of decrease in the Case-Shiller home price index, household wealth, and labor market and disability status are substantial predictors of mortgage payment distress and foreclosure.
Number of Pages in PDF File: 34
Keywords: mortgage distress, foreclosure, housing, Case-Shiller indexworking papers series
Date posted: January 24, 2013
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