Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications

67 Pages Posted: 18 Oct 2019

See all articles by Christopher L. Foote

Christopher L. Foote

Federal Reserve Bank of Boston

Lara Loewenstein

Federal Reserve Bank of Cleveland

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: October 16, 2019

Abstract

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

Foote, Christopher L. and Loewenstein, Lara and Willen, Paul S., Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications (October 16, 2019). FRB of Cleveland Working Paper No. 19-19, Available at SSRN: https://ssrn.com/abstract=3471312

Christopher L. Foote

Federal Reserve Bank of Boston ( email )

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Lara Loewenstein (Contact Author)

Federal Reserve Bank of Cleveland ( email )

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Cleveland, OH 44101-1387
United States

Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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