Foreclosures, House Prices, and the Real Economy

59 Pages Posted: 9 Dec 2010 Last revised: 8 Jan 2015

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi

University of Chicago - Booth School of Business; NBER

Francesco Trebbi

Vancouver School of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2014

Abstract

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.

Keywords: Foreclosures, House Prices, Durable Consumption, Residential Investment, Auto Sales, Mortgage Defaults, Amplification

Suggested Citation

Mian, Atif R. and Sufi, Amir and Trebbi, Francesco, Foreclosures, House Prices, and the Real Economy (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. Available at SSRN: https://ssrn.com/abstract=1722195 or http://dx.doi.org/10.2139/ssrn.1722195

Atif R. Mian

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Sufi (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francesco Trebbi

Vancouver School of Economics ( email )

University of British Columbia
6000 Iona Dr.
Vancouver Canada, BC V6T 1L4
Canada

HOME PAGE: http://faculty.arts.ubc.ca/ftrebbi/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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