The Local Effects of Foreclosures

108 Pages Posted: 14 Jun 2017 Last revised: 26 Dec 2019

See all articles by Christos Makridis

Christos Makridis

Stanford University; Arizona State University (ASU); Massachusetts Institute of Technology (MIT) - Sloan School of Management; Department of Veterans Affairs (VA)

Michael Ohlrogge

New York University School of Law

Date Written: May 6, 2018


We exploit the staggered and discontinuous changes in interest rates among adjustable rate mortgages to identify the effects of foreclosures independently of housing prices. First, interest rate resets predict foreclosure, accounting for up to 18% of the change in foreclosures. Second, a 10% rise in foreclosures is associated with a 1.14% and 2.57% decline in non-tradables employment and hiring, respectively, accounting for up to 10% of the decline in the hiring rate between 2006-2011. Third, we introduce a new mechanism independent of housing prices whereby foreclosures reduce local optimism and raise uncertainty, thereby leading to a contraction of credit that affects hiring, especially small businesses.

Keywords: Employment, Foreclosures, Labor Markets, Mortgages, Uncertainty

JEL Classification: G21, J21, J23, R31

Suggested Citation

Makridis, Christos and Ohlrogge, Michael, The Local Effects of Foreclosures (May 6, 2018). Available at SSRN: or

Christos Makridis (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

Department of Veterans Affairs (VA) ( email )

810 Vermont Avenue NW
Washington, DC 20420
United States

Michael Ohlrogge

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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