Subprime Lending and Real Estate Markets

U of Penn, Inst for Law & Econ Research Paper No. 08-35

MORTGAGE AND REAL ESTATE FINANCE, Stefania Perrucci, ed., Risk Books, 2008

17 Pages Posted: 24 Dec 2008

See all articles by Susan M. Wachter

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Andrey D. Pavlov

Simon Fraser University (SFU) - Finance Area

Zoltan Pozsar

Credit Suisse; Shadow Banking Colloquium (INET)

Abstract

The recent credit crunch, and liquidity deterioration, in the mortgage market have led to falling house prices and foreclosure levels unprecedented since the Great Depression. A critical factor in the post-2003 house price bubble was the interaction of financial engineering and the deteriorating lending standards in real estate markets, which fed onto each other, and caused an unsustainable rise in prices, and then collapse. Empirical evidence points to amplification in the correction of real estate prices as the direct result of the end of access to under-priced financing. Thus the pro-cyclicality of lending standards has been the driving factor in both the housing boom and subsequent collapse.

Keywords: Real Property, real estate, realty, mortgages, housing prices, credit crunch, foreclosures, financial engineering, lending standards, housing market collapse, underpriced financing, interest only mortgages, negative amortization mortgages, leverage, cyclicality, housing bubble

JEL Classification: D12, K11, L85

Suggested Citation

Wachter, Susan M. and Pavlov, Andrey D. and Pozsar, Zoltan, Subprime Lending and Real Estate Markets. U of Penn, Inst for Law & Econ Research Paper No. 08-35, MORTGAGE AND REAL ESTATE FINANCE, Stefania Perrucci, ed., Risk Books, 2008, Available at SSRN: https://ssrn.com/abstract=1319757

Susan M. Wachter (Contact Author)

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

Andrey D. Pavlov

Simon Fraser University (SFU) - Finance Area ( email )

Burnaby, British Columbia V5A 1S6
Canada
604 291 5835 (Phone)
604 291 4920 (Fax)

Zoltan Pozsar

Credit Suisse ( email )

Eleven Madison Avenue
New York, E14 4QJ
United States

Shadow Banking Colloquium (INET) ( email )

300 Park Avenue South, 5th Floor
New York, NY 10010
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
967
Abstract Views
5,177
rank
25,817
PlumX Metrics