House Price Expectations and Mortgage Default Decisions

33 Pages Posted: 1 Jan 2016 Last revised: 5 Sep 2016

See all articles by Chao Ma

Chao Ma

WISE & SOE, Xiamen University

Date Written: April 1, 2016

Abstract

If mortgage borrowers default strategically, their future house price expectations should affect their present mortgage default decisions. Merging the Freddie Mac loan performance dataset with the Michigan Survey of Consumers data containing households’ subjective expectations, this paper provides direct empirical evidence on whether low (high) house price expectations will increase (decrease) default probabilities after controlling other factors. The results show strong evidence on borrowers in nonrecourse states for owner-occupied property with low debt-to-income ratio, borrowers for second home, and borrowers for investment property.

Keywords: Mortgage Default, House Price Expectation, Forecasting

JEL Classification: G1, G2, R2

Suggested Citation

Ma, Chao, House Price Expectations and Mortgage Default Decisions (April 1, 2016). Available at SSRN: https://ssrn.com/abstract=2709563 or http://dx.doi.org/10.2139/ssrn.2709563

Chao Ma (Contact Author)

WISE & SOE, Xiamen University ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

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