Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications
67 Pages Posted: 18 Oct 2019
Date Written: October 16, 2019
In this paper, we use two comprehensive micro datasets to study the evolution of the distribution of mortgage debt during the 2000s housing boom. We show that the allocation of mortgage debt remained stable, as did the distribution of real estate assets. We propose that any theory of the boom must replicate this fact. Using a general equilibrium model, we show that this requires two elements:
(1) an exogenous shock to the economy that increases expected house price growth or, alternatively, reduces interest rates and
(2) financial markets that endogenously relax constraints in response to the shock.
The role played by subprime mortgage debt provides additional empirical evidence that this narrative mirrors reality.
JEL Classification: R31, D3
Suggested Citation: Suggested Citation