A Quantitative Analysis of the US Housing and Mortgage Markets and the Foreclosure Crisis

48 Pages Posted: 12 Aug 2011

See all articles by Satyajit Chatterjee

Satyajit Chatterjee

Federal Reserve Bank of Philadelphia

Burcu Eyigungor

Federal Reserve Bank of Philadelphia

Date Written: July 1, 2011

Abstract

The authors construct a quantitative equilibrium model of the housing sector that accounts for the homeownership rate, the average foreclosure rate, and the distribution of home-equity ratios across homeowners prior to the recent boom and bust in the housing market. They analyze the key mechanisms that account for these facts, including the preferential tax treatment of housing and inflation. The authors then use the model to gain a deeper understanding of the recent housing and mortgage crisis by studying the consequence of an unanticipated increase in the supply of housing (overbuilding shock). They show that the model can account for the observed decline in house prices and much of the increase in the foreclosure rate if two additional forces are taken into account: (i) the lengthening of the time to complete a foreclosure (during which a defaulter can stay rent-free in his house) and (ii) the tightening of credit constraints in the market for new mortgages.

Keywords: Leverage, Foreclosures, Mortgage Crisis

JEL Classification: E21, E32, E44, G21, H24

Suggested Citation

Chatterjee, Satyajit and Eyigungor, Burcu, A Quantitative Analysis of the US Housing and Mortgage Markets and the Foreclosure Crisis (July 1, 2011). FRB of Philadelphia Working Paper No. 11-26. Available at SSRN: https://ssrn.com/abstract=1908843 or http://dx.doi.org/10.2139/ssrn.1908843

Satyajit Chatterjee (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3861 (Phone)
215-574-4364 (Fax)

HOME PAGE: http://sites.google.com/site/chatterjeesatyajit/home

Burcu Eyigungor

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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