Diminishing Margins: Housing Market Declines and Family Financial Responses

34 Pages Posted: 24 Jan 2013

See all articles by Frank P. Stafford

Frank P. Stafford

University of Michigan at Ann Arbor - Department of Economics

Erik Hurst

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Bing Chen

University of Michigan at Ann Arbor - Department of Economics

Date Written: December 1, 2012

Abstract

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.

Keywords: mortgage distress, foreclosure, housing, Case-Shiller index

Suggested Citation

Stafford, Frank P. and Hurst, Erik and Chen, Bing, Diminishing Margins: Housing Market Declines and Family Financial Responses (December 1, 2012). Michigan Retirement Research Center Research Paper No. 2012-276. Available at SSRN: https://ssrn.com/abstract=2206394 or http://dx.doi.org/10.2139/ssrn.2206394

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

Erik Hurst

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bing Chen

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

Ann Arbor, MI
United States

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