Mortgage Contract Decisions and Mortgage Distress: Family and Financial Life-Cycle Factors

28 Pages Posted: 12 Nov 2010 Last revised: 19 Dec 2010

See all articles by Frank P. Stafford

Frank P. Stafford

University of Michigan at Ann Arbor - Department of Economics

Elena Gouskova

University of Michigan at Ann Arbor - Institute for Social Research (ISR), Survey Research Center

Date Written: September 2010

Abstract

The U.S. economy experienced a dramatic rise in the price of owner occupied housing during 1999-2007, and then a precipitous decline from 2007 through 2009. In this paper we utilize data from the Panel Study of Income Dynamics (PSID) during 1999-2009 to study first the factors and borrowing decisions which were related to the run-up and then to see how these diverse positions in owner-occupied housing related to the subsequent difficulties and mortgage distress as of 2009. Our research shows that much of the rise and subsequent difficulties were concentrated among younger and less educated homeowners, and that the difficulties were also concentrated in selected real estate markets where home owners were allocating a substantial share of their income to debt service and other home related outlays such as taxes, utilities, and insurance. This pattern of high costs to support a housing position is interpreted as the result of a speculative price run-up supported by the joint decisions of the homeowners and their lenders. In this process the older population took on more mortgage debt than in prior years and may now have less capacity to support help to other adult family members living outside the home.

Suggested Citation

Stafford, Frank P. and Gouskova, Elena, Mortgage Contract Decisions and Mortgage Distress: Family and Financial Life-Cycle Factors (September 2010). Michigan Retirement Research Center Research Paper No. 2010-225. Available at SSRN: https://ssrn.com/abstract=1707526 or http://dx.doi.org/10.2139/ssrn.1707526

Frank P. Stafford (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Elena Gouskova

University of Michigan at Ann Arbor - Institute for Social Research (ISR), Survey Research Center ( email )

Ann Arbor, MI 48106-1248
United States

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