Foreclosure Spillovers and Individual Well-Being: Evidence from the Great Recession

64 Pages Posted: 21 Jun 2017 Last revised: 21 Jul 2019

See all articles by Christos Makridis

Christos Makridis

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

Michael Ohlrogge

New York University School of Law

Date Written: July 20, 2019

Abstract

Abstract This paper explores the causal effect of foreclosure on individual well-being and social capital. Using plausibly exogenous variation in the timing of interest rate changes on different types of adjustable rate mortgages (ARMs), we find that a 10% rise in foreclosures is associated with a 0.58% and 0.28% decline in current and expected future life satisfaction. These effects are primarily driven by the effects on local optimism and social capital. The results are consistent with models of spatial externalities where large-scale shocks generate adverse effects on communities, not just individuals.

Keywords: foreclosures, housing market, life satisfaction, well-being

JEL Classification: D14, I31, R31

Suggested Citation

Makridis, Christos and Ohlrogge, Michael, Foreclosure Spillovers and Individual Well-Being: Evidence from the Great Recession (July 20, 2019). Available at SSRN: https://ssrn.com/abstract=2989865 or http://dx.doi.org/10.2139/ssrn.2989865

Christos Makridis (Contact Author)

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

100 Main Street
E62-416
Cambridge, MA 02142
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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